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The Role of ETFs in Asset Management Allocation

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ETF Investing Summit panel asked the always important question: Where's the alpha?

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MINYANVILLE ORIGINAL The duty of a money manager is to find alpha, wherever it may be. And, according to Wednesday's 3rd Annual ETF (Exchange Traded Fund) Investing Summit, chaired by Greenhaven President Ashmead Pringle, that alpha is found in ETFs.

Pringle introduced data supporting the argument that ETFs are decidedly not a fad. As Pringle explained, only funds registered under 1933 Securities Act are ETFs. There's over $1.2 trillion circulating in ETFs, and the US offers 1,374 of them. Allocations, he added, look like a typical portfolio: 70% equities, 20% fixed income. He emphasized low management fees and that lower-end ETFs can expect 95 basis points and 25 for higher-end.

ETFs, he concluded, help investors to deal with both daily and "underlying" or long-term liquidity.

The morning panel on the role of ETFs in asset management for the upcoming year was moderated by Oliver Pursche, co-portfolio manager and managing partner of Montebello Partners and President of Gary Goldberg Financial Services.

The panel included Kevin D. Mahn, President & CIO of Hennion & Walsh Asset Management; Axel Merk, President & CIO of Merk Investments; and Paul Ingersoll, CEO of Good Harbor Financial. All three panel members used the term "active space" to describe what they wanted to see from ETFs.

Mahn argued that ETFs are strong candidates for investment in many asset classes and sectors these days. He stated that he tends to use passive, index tracking ETFs for fixed income and commodity allocations in growth portfolios though there was still a role for actively managed strategies (primarily through mutual funds) for other asset classes and sectors. He also stressed emerging markets as an area where new and further ETF development is warranted.

Axel Merk also endorsed active ETF investment. Active for him means management that tries to best a benchmark in price, and in which buying and selling is performed by the broker. A vast preponderance of ETFs are passive, but Merk argued for active management as a necessary tactic.

Merk Investments recently filed for permission to market an ETF version of its Merk Hard Currency Fund (MERKX) as the firm believes that now, amidst all kinds of sovereign deleveraging, is not the time to back away from currencies. The firm will also launch a physical gold ETF which will trade on the New York Stock Exchange as OUNZ.

Merk, an active Tweeter, noted that he considers Twitter a component of the client-friendly transparency afforded by ETFs.

Ingersoll expressed a little more of reservation regarding actively management ETFs. He championed the easy "killability" of ETFs because they're so cheap and require so little overhead. He also noted that because ETFs typically don't buy and sell but instead hold securities, there are virtually no transaction fees.

Minyanville will be covering other panels from the conference separately.
No positions in stocks mentioned.
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