Funds-amentals: Hancock readies actively managed ETF

Tue Sep 6, 2011 5:18pm EDT

* John Hancock files for target-risk ETF

* CEO says actively managed funds still have issues

* Mutual fund firm also looking at passively managed ETFs

By Jessica Toonkel

NEW YORK, Sept 6 (Reuters) - John Hancock Funds LLC, which oversees about $34 billion in traditional mutual funds, is moving closer to launch its first exchange-traded funds.

The Boston-based fund manager on Aug. 26 amended a filing with the Securities and Exchange Commission to say it plans to launch an actively managed Global Balanced Fund. Hancock President and Chief Executive Keith Hartstein said he could not discuss timing of the launch.

When the fund management unit of Manulife Financial Corp.'s John Hancock Financial first sought permission from the Securities and Exchange Commission in December 2009 to prepare an unnamed ETF offering, Hartstein said he was skeptical investors would really flock to actively managed ETFs.

Most ETFs are passively managed vehicles that mimic an underlying securities index and are rapidly gaining popularity because of their inexpensive management fees and the ability of investors to trade in and out of the exchange-listed funds.

Hartstein said he still has questions about the actively managed ETF market, but fewer than he had 18 months ago. "We still have yet to see an actively managed equity ETF that has had success in gaining significant assets," he said in an interview. "But this is just another step to be prepared if the market takes off."

Robert Goldsborough, an ETF analyst at Morningstar Inc., said active ETFs are still much less expensive than their mutual fund counterparts. The average net expense ratio of an actively managed ETF is 0.76 percent, compared to more than 1.0 percent for the average U.S. equity mutual fund, according to Morningstar.

The John Hancock Global Balanced Fund would invest about 40 percent of its assets in fixed income securities and 60 percent in stocks, with the flexibility to change its target allocations by up to 10 percent, according to the filing.

The ETF would be categorized as a target-risk fund, predecessors to the more popular target-date funds, that reallocate investments according to predetermined risk tolerances. Hancock could eventually offer a family of target-risk ETFs, said Andrew Arnott, executive vice president of investment management services at John Hancock Funds.

Hancock manages about $68.7 billion in its target risk mutual funds, which include annuity sub-accounts.

Actively managed ETFs are a small part of the market, representing just about $5.8 billion of the more than $1 trillion in ETF assets. Almost half of actively managed ETF assets are held at just two funds--Pacific Investment Management Co.'s Enhanced Short Maturity Fund (MINT.P) and the WisdomTree Emerging Markets Local Debt ETF (ELD.P), according to Morningstar Inc.

John Hancock has lots of company among traditional fund managers as it eases toward ETFs, said Cindy Zarker, head of retail asset management at the consulting firm Cerulli Associates.

"As firms see that ETFs aren't going away, some want to take a more product-agnostic approach and have their strategies out in different kinds of vehicles," she said.

Some money managers have expressed concern that hedge funds and other nimble institutional traders could take advantage of the funds' daily disclosure of their holdings and batter down values. But Hancock's Hartstein said that issue is fading as the market evolves.

Just last week, BlackRock Inc. filed to launch a family of actively managed ETFs that wouldn't require daily portfolio disclosure.

"It sounds more and more like the whole issue around transparency is going to get worked out in some fashion," Hartstein said.

Hancock also is putting some of its eggs in the passively managed basket. On Aug. 29 it added details to a previous filing in which it sought to launch a passively managed ETF, saying the fund will be called the John Hancock Global Infrastructure ETF Fund and track an unidentified index.

Despite the filing alteration, Hancock doesn't expect to become a major player in the passive ETF space.

"This gives us the flexibility to do something in the indexed space," Arnott said, "but don't expect Hancock to come out with an S&P 500 Indexed ETF."

(Reporting by Jessica Toonkel; editing by Walden Siew)

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