Susan,

It seems to me that actively managed ETF's (whatever that may actually be) might be more akin to quantitatively managed funds  like Bridgeway's or Bogle, Jr's funds rather than CEF's.  In roaming through google on this topic, it appears that the UK has long had actively managed ETF's but I couldn't find a definitive enough article to link.

Roberta 

I hate to say it, Roberta, but I disagree. If the quant funds by Bridgeway or Bogle Jr are traditional open-end funds like Hennessy's HFTFX, HDOGX, HFCVX and HFBFX, then you're comparing cherries to bananas. I don't know much about ---and am not aware of any--- quant ETFs. I'm sure they're out there. In my ignorance, it is quite possible that I AM familiar with a few and just don't realize it. Please provide some tickers for quant ETFs so we can recognize them for what they are and examine them.

It would also help if you can give the tickers for Bridgeway's and Bogle Jr's OEFs, too. Please provide the same if they have any ETFs or CEFs.

Of course, I am assuming that fundamental and enhanced ETFs are not defined as a type of quant fund --or vice versa. I don't know. I'm not an indexer. I like ETFs and indexed OEFs definitely have their uses.** I own several ETFs and have owned index-based funds like HFTFX and the PIMCO index-enhanced OEFs, but I'm really an active investor.

This is getting a little convoluted, isn't it? LOL!

I would describe ETFs and CEFs as mutual funds on wheels. Their shares trade intraday from minute to minute. In contrast, traditional open-end mutual funds (OEFs) recalculate their values only once daily. IMO, OEFs are either index-based or -enhanced or they are actively-managed. Quant OEFs are formula-based and yet have the human element. Indexers might consider them sullied by the human hand and, therefore, are active OEFs by their definifiton of "active". As a member of the active-management camp, I consider quant OEFs to be a type of index fund if the human element is infrequent. Only if the human influence is intrusive and is applied quite frequently would I consider it to be active (ie quarterly or monthly).

With ETFs and CEFs, I think it should be clear-cut. Either you're index-based or you're not. If you're index-based, you are passive. IMO, I really don't think we need quasi-indexed/quasi-active ETF/CEFs. I think the SEC should tell Mr PussyFoot wanting them to approve an "active" index ETF to grow up and just call his products enhanced-index or index-based CEFs.

Why muddy the waters, anyway? An ETF invests using a static formula. Changes in its holdings are infrequent and modifications in its formula would be rare. A CEF manages its investments. It can be index-based with an active human influence or it can be freely and actively-managed by its manager. If an investment product is 100% guided by a formula, it's an ETF. If it is mostly guided by a formula but has frequent human intervention, it's a CEF. Ergo, in my opinion, an actively-managed ETF is a CEF.

Regards,

Susan

P.S. for pkcrafter et al... I don't know if you noted this ** in my 3rd paragraph, but I hope this helps to explain why I subscribe to IndexUniverse.com --ETFs.

I just re-read my own post and it hit me!

Indexers beware! Mr PussyFoot (the investing industry) wants YOU. By calling their more actively-managed index-based investments ETFs, he's got your business. He thinks you would shy away from "active" investments like CEFs...

CEF = active, ETF = passive.  CEF.... bad. ETF.... good.

Ergo, they have to keep the ETF name and the pure indexing status it implies. Mr PussyFoot must think that your tiny minds (his opinion, not mine) will automatically accept the indexing aura of ETF.

Regards,

Susan

P.S. It is possible that this post will be duped. M* didn't accept my first one.

I always thought that one of the advantages of a ETF was the ability to add a creation unit.  How would anyone create a creation unit for an actively managed ETF?  The asset mix could very well be a moving target, one thing in the morning, but something completely different in the afternoon.
 
I have to agree with Susan.  If it is actively managed, then it should be called a CEF.

Gordon

glallen:

I always thought that one of the advantages of a ETF was the ability to add a creation unit.  How would anyone create a creation unit for an actively managed ETF?  The asset mix could very well be a moving target, one thing in the morning, but something completely different in the afternoon.

An actively managed ETF may decide to allow purchases and redemptions of creation units in cash using the next calculated (such as, end of day) NAV after the order has been received.

AlthoughETFs announce a basket of securities and cash to be exchanged for a creation unit each day before the markets open, during the day they may create or redeem creation units in exchange for a basket different than the published one.

Hi Susan,

Thank you for the link to additional information. Some of your views are so opposite from mine that it makes me smile. I am afraid I will have to once again sit in the idiot's corner because I can see accidental consultant's point.

First off, I believe that a true index must actually track the market or some segment of the market as it exists. That means it has to be cap-weighted because that is the way the stock market actually is.  It's that way because that's the way investors have invested their money.   

The largest stock in the market will get a lot more of an invested dollar than a small stock because the biggest stock is worth a lot more. But each stock will get the same percentage in proportion to it's value.  AC's example is somewhat simplistic, but it's generally accurate. If there are only two stocks, one giant and the other small, a true index fund will allocate almost all of a dollar to the giant stock. In a fundamental index, the smaller stock will get more of the dollar; therefore, the money invested in it is overweighted as measured against the consensus of all investor money. There may be nothing wrong in doing this, but it is a departure from the consensus.

.
Fundamental indexes are created indexes, and since they are not cap weighted they can't be true index funds. I don't think this is arguable, but I'll see what others have to say.I really don't know what came first, the fundamental index fund or the fundamental index. I suspect that the idea of a fund with a small and value tilt was envisioned first and then an index was created so it would have something to track. Even Vanguard has a designer fund and index created for it to track. It's the High Dividend Yield Index, VHDYX.

I tend to think of these passively managed ETFs as quant funds. And I think your perception of what they are and how they are marketed is right on. YES! I agree with you. : - )

 

  Paul

 

 

 

 

rascfw:

I hate to say it, Roberta, but I disagree. If the quant funds by Bridgeway or Bogle Jr are traditional open-end funds like Hennessy's HFTFX, HDOGX, HFCVX and HFBFX, then you're comparing cherries to bananas. I don't know much about ---and am not aware of any--- quant ETFs. I'm sure they're out there. In my ignorance, it is quite possible that I AM familiar with a few and just don't realize it. Please provide some tickers for quant ETFs so we can recognize them for what they are and examine them.

It would also help if you can give the tickers for Bridgeway's and Bogle Jr's OEFs, too. Please provide the same if they have any ETFs or CEFs.

Of course, I am assuming that fundamental and enhanced ETFs are not defined as a type of quant fund --or vice versa. I don't know. I'm not an indexer. I like ETFs and indexed OEFs definitely have their uses.** I own several ETFs and have owned index-based funds like HFTFX and the PIMCO index-enhanced OEFs, but I'm really an active investor.

This is getting a little convoluted, isn't it? LOL!

I would describe ETFs and CEFs as mutual funds on wheels. Their shares trade intraday from minute to minute. In contrast, traditional open-end mutual funds (OEFs) recalculate their values only once daily. IMO, OEFs are either index-based or -enhanced or they are actively-managed. Quant OEFs are formula-based and yet have the human element. Indexers might consider them sullied by the human hand and, therefore, are active OEFs by their definifiton of "active". As a member of the active-management camp, I consider quant OEFs to be a type of index fund if the human element is infrequent. Only if the human influence is intrusive and is applied quite frequently would I consider it to be active (ie quarterly or monthly).

With ETFs and CEFs, I think it should be clear-cut. Either you're index-based or you're not. If you're index-based, you are passive. IMO, I really don't think we need quasi-indexed/quasi-active ETF/CEFs. I think the SEC should tell Mr PussyFoot wanting them to approve an "active" index ETF to grow up and just call his products enhanced-index or index-based CEFs.

Why muddy the waters, anyway? An ETF invests using a static formula. Changes in its holdings are infrequent and modifications in its formula would be rare. A CEF manages its investments. It can be index-based with an active human influence or it can be freely and actively-managed by its manager. If an investment product is 100% guided by a formula, it's an ETF. If it is mostly guided by a formula but has frequent human intervention, it's a CEF. Ergo, in my opinion, an actively-managed ETF is a CEF.

Regards,

Susan

P.S. for pkcrafter et al... I don't know if you noted this ** in my 3rd paragraph, but I hope this helps to explain why I subscribe to IndexUniverse.com --ETFs.

 

http://tinyurl.com/66sf9x

Ok, pkcrafter, who did I insult this time? No, wait --I take it back. If you know who Accidental Consultant is, please don't tell me. I'd have to wipe egg off my face again. What can I say? As you know (unfortunately), I can be quite opinionated and I'm not shy about sharing my views.

Upon reflection, my "idiot" comment about AC was a little harsh. My bad. Then again, I fail to see how he/she could think that anyone would perceive a list of 2 stocks as a potential index. It isn't. If it was and you just cap-weighted the index as AC suggests, I'd discard the microcap stock and just buy the mega-cap stock outright.

AC should have taken an actual index like the S&P500, Russell 2000 or whatever and then demonstrated how applying the fundamental weighting would change the composition of what you'd own. You know, the dividend yield, sector/industry percentage breakdown, the beta (if calculable), etc. Better yet, why couldn't AC just compare SPY SPDR S&P500 ETF with RSP Rydex S&P Equal Weight and use these real-world investments to present his/her case?

I agree with you about fundamental indexes, Paul. I think that the concept of a fundamental index-based investment was hatched and a fundamental index was born from that concept. So long as the fundamental investment actually meets a real need, though, I see nothing wrong with that. It's this frivolous froo-froo actively-managed "ETF" baloney that really blows MY mind.

Do you see any possible benefits in owning a fundamental index-based investment (OEF, ETF or CEF)? Or do you prefer to restrict yourself to plain-vanilla index investments? If so, why? I'm not trying to be intrusive. I'm just trying to understand this from your perspective.

Regards,

Susan

P.S. Hallelujah! I'm glad to see that we have found common ground, Paul...

I tend to think of these passively managed ETFs as quant funds. And I think your perception of what they are and how they are marketed is right on. YES! I agree with you. : - )