Actively managed exchange traded funds (ETFs) is a hot topic on investor’s minds’ right now. Currently, providers are addressing the issue in many different ways. Rich Furlin of Best Independent Research says the quasi-active ETFs they have launched are interesting because the models have proven themselves over many years. The Claymore/BIR  Leaders 50 (BST), Mid-cap (BMV) and Small-cap (BES) are a mix of 5-top independent research firms- Columbine Capital, Ford Equity Research, Channel Trend Ativo, and Thomas White International. They are used to making adjustments as they have been around for over 20 years, providing institutional investors quantitative models. Their buy/hold/sell recommendations outperform all in the industry, and none of the quasi-active ETFs on the market today can rival this history.  Currently, we are in dialog with this company to get a clearer picture on their objective, so expect more to come.

Sonya Morris of Morningstar reviews quantitative models for ETFs and outlines the current pros and cons:

  • The process enforces investment discipline;
  • Computer models don’t get caught in market mania or investment fads;
  • The advantage of the model could disappear if others try to copy it;
  • Teams continually need to evaluate and enhance the model;
  • They tend to have above-average turnover rates, which could impair their tax efficiency.

Keep in mind many of the quantitative ETFs have not been around very long, so there is little historical performance to be meaningful.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.