Excited to see the news that the SEC has hired a new ETF Czar, Barry Pershkow. There has been quite a logjam/blockade at the SEC with funds filing with anything even mentioning the word derivatives so hopefully this helps them with the workload.
I still think there is a huge opportunity for some public managed futures, both targeting bond like volatility as well as more aggressive stock like vol and 20%+ targets. Since 80% or so of the CTA world all do the same thing, here is a fun paper I forgot to link to this past fall – Quest Research Notes – Black Box Trend Following – Lifting the Veil. Conquest also had a paper titled the Beta of Managed Futures.
The top 5 managed futures mutual funds have $7billion in AUM while the the average expense ratio is 2.71%. The average sales charge for the A class is 5.75%. Talk about SuperFees!
The only two managed futures ETFs trading are WDTI ( 0.95%) and LSC (0.75% but also an ETN), both based on the Sperandeo/S&P Indexes. The problem with these, like most indexes, is front running. In my Australia talk I mentioned the benefits of not following an index (and avoiding front running costs, up to 1.8% for small caps see Chen (2005) and Petajusto (2010) and up to 3% for the GSCI) which makes the active ETF structure perfect for active managers. (Also see ‘Indexing’s Dirty Little Secret.)
I think if someone launched a series of managed futures ETFs at low cost it would raise $1bln in the first year, easy. Once these trendfollowing funds start outperforming again, I see no reason a managed futures ETF couldn’t raise $5 bln in short order.
