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ETF Specialist

Howdy, Partner

Several traditional mutual fund firms have been pursuing partnerships with traditional ETF providers. How might this trend affect investors?

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Even as the exchange-traded fund industry has matured, many large traditional fund managers have remained on the outside looking in. The core cadre of ETF providers has changed little over the past few years, and much of the activity from the more traditional fund managers has involved their applications to issue actively managed ETFs. For the most part, brand-new issuers whose first ETFs have started trading have been small fries. And many traditional managers have applications pending to issue actively managed ETFs. Whether players such as Dreyfus, John Hancock, Neuberger Berman, T. Rowe Price, Principal, and Eaton Vance, for example, ever actually start issuing actively managed ETFs might be an open question, but all (along with many others) have placed serious proposals to do so before the SEC.

Recently, however, we have seen the emergence of traditional fund managers entering the ETF industry through partnerships. In early January, State Street rolled out three actively managed style-based equity ETFs in partnership with Massachusetts Financial Services: SPDR MFS Systematic Core Equity ETF (SYE), SPDR MFS Systematic Growth Equity ETF (SYG), and SPDR MFS Systematic Value Equity ETF (SYV). The three funds are subadvised by MFS and use a bottom-up approach to selecting stocks, based on both fundamental and quantitative analysis. Meanwhile, Emerging Global Advisors in early January launched three passively managed emerging-markets bond ETFs subadvised by TCW: EGShares EM Bond Investment Grade Intermediate Term ETF (IEMF), EGShares EM Bond Investment Grade Long Term ETF (LEMF), and EGShares EM Bond Investment Grade Short Term ETF (SEMF). While it's true that the three bond funds--which are Emerging Global's first--track J.P. Morgan indexes, the ETFs also follow sampling strategies, and TCW employs quantitative analysis to pick securities from the funds' respective indexes.

Robert Goldsborough does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.