Active ETFs: A Slam Dunk?

Although they’ve been around for a couple of years now, actively managed exchange traded funds (ETFs) still have yet to rake in tremendous assets. But ETF investors and mutual fund defectors alike might find plenty of things to like about these funds once they learn about the advantages and rewards they can offer.

Actively managed ETFs are like mutual funds, but without the less appealing aspects of little transparency, once-a-day pricing and hefty fees. The average actively managed mutual fund charges about 1.5% in annual expenses. It may not sound like a ton of cash, but add it up over decades and it becomes significant.

Actively managed ETFs, on the other hand, offer all the benefits of a trained manager alongside the benefits of ETFs: intraday liquidity, transparency, no investment minimums, no early redemption fees and lower expense ratios. [Fund Managers Heat Up.]

The savings you get by using actively managed and regular, index-tracking ETFs instead of similar mutual funds could translate into more capital; over the course of a few decades, you could save around 25% by switching from mutual funds, according to The Financial Post.

Thus, the saving with an actively managed ETF adds to your principle, and in the long run, you end up with more capital. Over the course of a couple of decades, those savings can bulk up your retirement fund by 25% compared to what you would achieve with similar mutual funds. [4 Reasons to Like Actively Managed ETFs.]

Today, there are about 17 actively managed ETFs on the market that mostly have yet to gather a huge number of assets. That’s largely because actively managed ETFs are still relatively new and investors will want to see whether they can generate alpha. [Muni Bond ETFs: Active or Passive?]

Several providers, including Grail Advisors, PowerShares and PIMCO, have all launched quality actively managed ETFs in recent years and more big names are in the pipeline. These include Hancock, Vanguard, Goldman Sachs, T. Rowe Price and Legg Mason. As more well-regarded managers enter the active space, it could add heft to a still-young segment of the ETF industry and the investors could follow.

For more stories about active management, visit our actively managed ETF category.

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.

Active ETFs: A Slam Dunk?

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