August 6, 2012
Attain Capital
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One of the things we’ve discussed in the past is that liquidity shouldn’t necessarily be the #1 concern for investors adequately managing their cash flow – at times it can even make for worse investment decisions. However, for those who are concerned about liquidity, and seeking out exposure to alternatives, the mad dash to ETFs may be ill-advised. Consider the following from Reformed Broker:
So with a lower cost, easier mechanics and sometimes even better results, the switch would appear to be a no-brainer (and there aren’t many on The Street, so when we come across one, it’s exciting).
But there’s a problem inherent to active ETFs that precludes this being a simple decision, the age-old chicken-or-the-egg conundrum.
Based on the most recent data I’ve come across, actively managed ETFs make up less than 5% of the entire AUM in the ETF universe. This makes sense as they are a relatively new concept to begin with. There aren’t many active products in the ETF world but many fund families are betting on them as the next frontier thanks to brutal competition in the index ETF space (Vanguard may begin running these things for free at some point!). And so there are quite a few being rolled out by everyone from iShares to State Street to, believe it or not, Fidelity -a firm that sat out the first 5 innings of the ETF game while roughly $1.5 trillion in assets migrated toward the structure (much of which came directly from traditional funds).
The trouble is, none of them are trading any volume to speak of. And it may be awhile before they do. Now you can work with your broker’s trading desk or use limits or even communicate with the authorized participants that handle the creation/redemption of these things for new orders – but that doesn’t alleviate the concern of what might happen in a fast market should you need to get out quickly. You know you’d be able to liquidate a Spyder or a Triple Q in a flash pretty much no matter what kind of size you come to the table with – but an active ETF averaging under 10,000 shares a day?
How confident can you be?
The fund families understand this hesitation on the part of asset allocators like myself – they need to get more people trading these vehicles in order to get more people trading these vehicles. This is chicken-or-the-egg writ large when you consider how important this line of products may one day become to the providers.
This conversation is particularly salient in the managed futures space. Consider the WisdomTree Managed Futures ETF – its three-month average daily volume is just over 60k, compared to nearly 166 million for the SPDR S&P 500 ETF. How much liquidity do you think you will have in one of these actively-traded alternative ETFs? If you can’t afford the managed account approach to the asset class, we can sort of understand the retail investing approach, but if you can, and liquidity matters to you, why waste your time in an ETF when you could go with much cheaper access through managed accounts and have daily liquidity that isn’t reliant on volume? Food for thought.
Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
The programs listed here are a sub-set of the full list of programs able to be accessed by subscribing to the database and reflect programs we currently work with and/or are more familiar with.
Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history. Individuals cannot invest in the index itself, and actual rates of return may be significantly different and more volatile than those of the index.
Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.
Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.
Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.
RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.
Limitations on RCM Quintile + Star Rankings
The Quintile Rankings and RCM Star Rankings shown here are provided for informational purposes only. RCM does not guarantee the accuracy, timeliness or completeness of this information. The ranking methodology is proprietary and the results have not been audited or verified by an independent third party. Some CTAs may employ trading programs or strategies that are riskier than others. CTAs may manage customer accounts differently than their model results shown or make different trades in actual customer accounts versus their own accounts. Different CTAs are subject to different market conditions and risks that can significantly impact actual results. RCM and its affiliates receive compensation from some of the rated CTAs. Investors should perform their own due diligence before investing with any CTA. This ranking information should not be the sole basis for any investment decision.
See the full terms of use and risk disclaimer here.
Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
The programs listed here are a sub-set of the full list of programs able to be accessed by subscribing to the database and reflect programs we currently work with and/or are more familiar with.
Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history. Individuals cannot invest in the index itself, and actual rates of return may be significantly different and more volatile than those of the index.
Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.
Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.
Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.
RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.
Limitations on RCM Quintile + Star Rankings
The Quintile Rankings and RCM Star Rankings shown here are provided for informational purposes only. RCM does not guarantee the accuracy, timeliness or completeness of this information. The ranking methodology is proprietary and the results have not been audited or verified by an independent third party. Some CTAs may employ trading programs or strategies that are riskier than others. CTAs may manage customer accounts differently than their model results shown or make different trades in actual customer accounts versus their own accounts. Different CTAs are subject to different market conditions and risks that can significantly impact actual results. RCM and its affiliates receive compensation from some of the rated CTAs. Investors should perform their own due diligence before investing with any CTA. This ranking information should not be the sole basis for any investment decision.
See the full terms of use and risk disclaimer here.