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Assessing Active ETF Perks

In various forms and methodologies, actively managed funds are increasingly prominent parts of the ETF landscape and that growth trajectory could last for years.

 

Advisors are looking critically at traditional market indexes and the challenges of navigating today’s new market environment.

 

“As the name suggests, the fund managers who run actively managed ETFs pick stocks and make frequent trades to generate returns. Active ETFs contain hundreds—or even thousands—of securities, providing a similar level of diversification that investors expect from other ETFs and mutual funds,” writes Miranda Marquit for Forbes.

 

Passive vs. Active Management

Some new active ETF products come with many of the same benefits we have enjoyed with traditional ETFs, but the new structure reduces the need for daily disclosures, which may help bring more stock-picking managers into the ETF space.

 

Traditional “active ETFs are required to reveal all of their holdings each day. For the vast majority of passively managed ETFs, which track a public index, this kind of requirement is beside the point because their component securities are already public knowledge,” according to Forbes.

 

The market volatility following March’s sell-offs due to the Covid-19 pandemic may have helped actively managed exchange-traded funds (ETFs) resurface in the capital markets. With the ability to shift with the ebb and flow of the markets, more upside could be ahead for active ETFs.

Some advisors believe investors should be considering actively managed strategies, especially in the current market environment, when a more nimble manager may be better suited to navigate quickly changing conditions.

 

“Active ETFs use market indexes as benchmarks. Rather than attempting to track or duplicate the performance of a given index, they try to beat its performance. If the fund manager of an active ETF plays their cards right, they may earn investors higher returns, although outperforming an index over the long term is very challenging,” according to Forbes.

 

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