Legg Mason (NYSE:LM)
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1 Month : From Nov 2019 to Dec 2019
By Justin Baer and Dawn Lim
Fidelity Investments and T. Rowe Price Group Inc. were among the firms that won preliminary regulatory approval to offer a new flavor of exchange-traded fund aimed at reviving investors' interest in stock-picking managers.
The U.S. Securities and Exchange Commission on Thursday gave a green light to the firms' plans, along with those submitted by Natixis Investment Managers and Blue Tractor Group, to create ETFs that choose securities without exposing the managers' trading tactics.
The approvals granted Thursday were years in the making, and come months after upstart Precidian Investments secured a go-ahead for its own active ETF model.
The firms will still need to work through various details before launching their funds, which also require further regulatory approval. A priority is making sure the ETFs can trade efficiently.
Thursday's approvals bring Fidelity, T. Rowe and the others a step closer to launching funds they believe will help win back investors who have moved money into low-cost ETFs that track popular stock indexes.
Clients have been flocking to these cheaper, passively managed products, which are less profitable for money-management firms, and losing faith in more expensive managers that try to outperform the market by handpicking investments. In a sign of the threat stock pickers face, assets in actively managed U.S. equity funds were surpassed by those in funds track broad U.S. stock indexes in August, Morningstar data show.
Investors' interest in index funds surged in the past decade with the emergence of the ETF, which trades on exchanges like stocks but is cheaper, more transparent and more tax-advantageous than mutual funds.
Active managers like to safeguard their stock-picking strategies so they aren't mimicked by competitors, and have for years hesitated to launch standard ETFs because they require more disclosure than a typical mutual fund. The new ETF models are each structured in a way that seeks to protect managers' trades.
"Given how money has moved away from traditional stock-picking funds to ETFs, the ability to offer nontransparent, proven strategies could be significant," said Todd Rosenbluth, head of ETFs and mutual-fund research at research firm CFRA. It could "alleviate some of the pressure traditional asset managers are facing," he said.
"We are excited to receive notice of approval for our innovative strategy, which we believe is the best approach to active equity ETFs for our clients," Greg Friedman, Fidelity's head of ETF management and strategy, said in a statement.
T. Rowe Price and Natixis aim to launch ETFs that will invest in U.S. stocks.
"We believe this is a significant milestone that will lead to opening a new avenue for our business," Tim Coyne, T. Rowe's head of ETFs, said in a statement.
Precidian has licensed its ETF structure to industry heavyweights such as Legg Mason Inc. and JPMorgan Chase & Co., and Precidian executives expect the first funds based on its model to launch within the next several months.
Blue Tractor has a similar business plan and will now start signing up its own licensees, said Simon Goulet, the firm's co-founder.
(END) Dow Jones Newswires
November 14, 2019 19:06 ET (00:06 GMT)
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