With the ongoing (and seemingly never-ending) active versus passive management debate, how it plays out in a mutual fund versus an ETF format and all the attendant arguments, where can one go for the "straight dope" before making a decision?
Morningstar, of course.
Ben Johnson, director of passive funds research with the Chicago-based firm, offered three points to consider before taking the active route. But don't let his title throw you; he likes the active ETF concept, but advises investors approach with a heavy dose of skepticism.
"2011 was supposed to be the 'Year of the active ETF,'" Johnson (left) told ThinkAdvisor on Thursday. "The clock was supposed to strike midnight on Dec. 31, 2010, and we would be off and running. That didn't happen."
When 2012 rolled around it was about "an" active ETF, rather than active ETFs in general.
"It was one company based in Newport Beach, Calif., that introduced what was essentially the younger brother of the single largest mutual fund strategy in the world," he said, referring to PIMCO's Total Return ETF (BOND) without specifically naming it.
Johnson considers its success a "mathematical inevitability."
"You have Bill Gross behind it, who was Morningstar's Fixed Income Manager of the Decade for the aughts. But it's not just performance, it's also the fees. I'd argue that it's really just a different distribution method. You go from A-shares in a mutual fund with front-end loads and expense ratios and put it in an ETF pipe instead, which results in substantial cost savings for the end investor."
