Bloomberg has an interesting article discussing the proliferation of investment managers running ETF-only products. According to the article, the trend is not a fad:
Morningstar Inc., the Chicago-based research firm that has rated mutual funds for more than 20 years, rolled out a database this month tracking managers offering asset-allocation models with more than 50 percent of their money in ETFs. The list includes 49 companies overseeing $7.7 billion in 179 products.
Informa Investment Solutions Inc., in White Plains, New York, which rates the performance of institutional investment strategies, tracks 269 ETF-based asset-allocation products from 88 firms managing $17.6 billion. New York’s BlackRock Inc., the largest ETF provider, publishes an annual guide to the field, the latest edition covering 83 firms and $18 billion.
“The growth in this area is undeniable, and it’s not a fad,” Scott Burns, head of ETF research for Morningstar, said in a telephone interview. “There’s a shift going on from seeking outperformance on an individual-company basis to seeking it on a macro basis.”
We started down this road in 2006, with the Arrow DWA Balanced Fund (DWAFX). We enlarged our footprint with our Global Macro separate account, with the strategy later extended to the Arrow DWA Tactical Fund (DWTFX). The breadth of ETF products now available allows for Global Macro to act like a hedge fund alternative, something that was not really possible on a retail level even ten years ago. Apparently we are one of the heavyweights, as our current assets in these strategies is near $800 million, much higher than the average firm assets indicated in the various databases, which ranged from $157 to $216 million.
On the other hand, while ETF allocation managers are not a fad, I don’t really think we have a new world order. Our research indicates that there is additional value to be added when granularity is increased. The additional return will likely come at the cost of more volatility, but products focused at the individual security level may still provide the best long-term returns. We think ETF-based products are great, but there’s more than one way to skin a cat.
To obtain a fact sheet and prospectus for the Arrow DWA Tactical Fund (DWTFX) or the Arrow DWA Balanced Fund (DWAFX), click here.
Posted by Mike Moody 
