Why Active ETFs Are Outperforming Closest Passive Competitors | ETF Trends

Actively managed exchange traded funds (ETFs) are ahead of their passive competitors, but so far PowerShares is still the only true provider for this relatively new niche investment tool.

Looking at the past three months and the last year, active stock ETFs by PowerShares are performing by as much as 5% better than their passive counterparts, writes Murray Coleman for IndexUniverse. PowerShares’ “active” ETFs provide a level of freedom to trade and don’t track a benchmark. It should be noted that these actively managed ETFs do have higher expense ratios compared to passive ETFs, but they’re still less expensive than mutual funds.

The four PowerShares active ETFs in the markets include:

  • PowerShares Active Mega Cap Fund (PMA), which is comprised of the best performing large-cap stocks last year, has outperformed its passive competitors, iShares S&P 100 Index (OEF) and the Vanguard Mega Cap 300 Index (MGC),  by 3.5-5% in the last three months. PMA includes around 30 mega-cap stocks, which tries to outperform the Russel Top 200 index, and so far fared better than the Russell by 5% for the year. Compared to MGC, PMA has more exposure to energy (21.7%), health care (25.2%), and technology (31.8%), but it has less exposure in consumer staples (6.6%), financials (6.8%), and industrials (1.8%).

  • PowerShares Active Alpha Multi-Cap Portfolio (PQZ) may take up a range of different stocks. It has done 3% better compared to the average multi-cap core mutual fund and the Lipper multi-cap index. Compared to its closest competitor, Vanguard Total Stock Market ETF (VTI), it has more sector allocations in technology (40%) and materials (15.7%), but it is lighter in consumer discretionary (1.9%), consumer staples (3.4%), health care (9.7%), industrials (3.8%) and no exposure to utilities.

  • PowerShares Active AlphaQ Fund (PQY) is made of 50 top-ranked names from the Nasdaq composite benchmark. Its passive rival, the PowerShares QQQ (QQQQ), seems to be doing a little bit better. PQY differs in the fact that it holds around 6.5% in financials. It now holds 49.8% in technology and lately it is has been holding more in software companies. Furthermore, PQY has no allocations in energy.

  • PowerShares Active Real Estate Fund (PSR) focuses on real estate investment trusts with most investments in REITs. It has beaten broad-based index tracking funds, like the Vanguard REIT Index ETF (VNQ). Managers of PSR may select stocks of non-REITs with large real estate holdings that don’t distribute earnings and they are given the option to temporarily invest in cash under market distress.

Max Chen contributed to this article.

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.