Finance

Top Wall Street quant could be entering the ETF game

Key Points
  • AQR Capital Management manages $195 billion in assets and filed last Thursday with the U.S. Securities and Exchange Commission for an exemption that could allow it to introduce exchange-traded funds.
  • The company is known for its use of quantitative investing strategies to sell hedge funds and mutual funds.
  • Offering ETFs would follow a trend of other active asset managers who have rolled out the increasingly popular exchange-traded products in the last few years.
Cliff Asness.
Chris Goodney | Bloomberg | Getty Images

Top money manager Cliff Asness' AQR Capital Management is looking to enter the growing exchange-traded fund business.

The company filed with the U.S. Securities and Exchange Commission last Thursday for an exemption that would allow it to potentially offer ETFs in the future. AQR manages $195 billion in assets and is known for its use of quantitative investing strategies, using computers to screen stocks for value, momentum or other characteristics, to sell hedge funds and mutual funds.

"While AQR currently has no immediate plans to launch ETFs, if approved this would provide the option to offer index-based and active-transparent ETFs in the future," AQR said in an emailed statement.

The likelihood of the company offering ETFs soon after receiving SEC approval may still be high. Actively managed investment products face increasing competition from passive investment products like ETFs.

"A firm that's new to the ETF space chooses to file … because they believe they're closer to having something ready for public consumption," said Todd Rosenbluth, director of ETF and mutual fund research at CFRA.

"I think any asset manager has a plan for how to compete and survive in a marketplace that's moving slowly toward an ETF route," he said.

Assets invested in exchange-traded products rose to $4.17 trillion at the end of the second quarter, surpassing the amount invested in hedge funds by $1 trillion for the first time, according to the research firm ETFGI.

In that environment, traditional asset managers are increasingly expanding into ETFs.

For example, Goldman Sachs Asset Management in September 2015 introduced its first ETF, the ActiveBeta U.S. Large Cap Equity ETF (GSLC). This May, ClearBridge Investments, which manages $127.3 billion, launched three, including its first actively managed ETF, the ClearBridge All Cap Growth ETF (CACG).

Both CACG and GSLC have slightly underperformed the S&P 500's 3-month gain of 1.9 percent.