Active ETFs are Gathering Steam. What Are They Anyway?
When most people think of Exchange-Traded Funds (ETFs), their minds turn to passively managed products. The growth of active ETFs is changing the landscape, though.
In the U.S., many individual investors use mutual funds to access actively managed investment strategies designed to (potentially) outperform benchmarks. High net worth investors may also use separately accounts (SMAs) and hedge funds to tap the skills of talented portfolio managers. ETFs, meanwhile, have historically tracked passively managed indices (traditional beta) or, more recently, followed smart beta strategies. (Smart beta products utilize quantitative methods in an attempt to isolate stocks or other securities with certain characteristics–these characteristics are often termed “factors.” Common factors include Value, Momentum, Quality, Size, and Carry.) More recently, actively managed ETFs have been gaining popularity, so let’s explore this innovative category of fund.