Actively managed exchange traded funds (ETFs) are just around the bend. But the old adage "You’ve got to give something to get something" holds true with them.
Ian Salisbury for the Wall Street Journal notes a few things that could fall by the wayside when these funds finally hit:
- You’ll give up indexing. Actively managed funds will have a broader mandate that will make it possible for fund managers to pick attractive stocks while attempting to outperform the market.
- You’ll likely give up rock-bottom prices. One reason ETFs are so inexpensive is because they are passively managed, meaning you aren’t paying a manager to do your stock picking for you.
- You might be saying goodbye to tax advantages. ETFs avoid forcing investors to pay taxes until they sell fund shares because they rarely trade and they can turn over shares they own without actually selling them, eliminating potential capital gains. While active ETFs might be more tax-friendly than conventional mutual funds, but they’re still likely to trade more often.
- You might have to wait until they catch on. Until active ETFs gain popularity, they could be thinly traded, making them expensive to buy and sell.
We feel that investors have to give up a lot, and many of these things are what make ETFs so great in the first place. We’re betting that after looking into it, investors will see actively managed funds the same way.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.