Mutual funds have been around for decades and millions of investors have gotten very attached. But it might be time to loosen that grip: actively managed exchange traded funds (ETFs) are here.
Actively managed ETFs still have to work out some kinks and they need to capture the broad interest of investors. Rest assured, though: providers and managers alike are working to smooth the wrinkles and take the industry to the next level. How much smoothing is really needed, though? Active ETFs are already a big improvement.
- Transparency Issues: Active ETFs have more transparency than actively managed mutual funds, which are only required to report holdings quarterly. Active ETFs require daily disclosure, which ensures the accountability of the portfolio managers. [Active ETFs Wait for the Revolution.]
- Tax Efficiency: With mutual funds, investors are affected by the actions of others in the fund. With active ETFs, an investor’s tax consequences are only affected by their own actions. An in-kind creation and redemption process again avoids the sale of securities and hence capital gains taxation.
- Intraday Pricing and Liquidity: Just as with regular ETFs, you can see up-to-the-minute pricing information and you can trade all day when markets are open – just like a stock. No more waiting until the end of the day. [Active ETFs Are Ready For Take-Off.]
- Lower Expenses: Most actively managed ETFs have expense ratios that are lower than those on the average active mutual fund that provides investors with exposure to a similar strategy. But as with all ETFs, watch to make sure you’re not racking up commissions.
- No Investment Minimums: Most active mutual funds have minimum investment amounts to enter the fund, usually between $1,000 to $5,000 for retail funds. Active ETFs have no minimum whatsoever, as long as you have enough money to purchase a single share of the fund on the market. [A New Provider Takes on Active ETF Management.]
- One Share Class for All. We’ll add one here: Are you tired of trying to make hay of all the different mutual fund share classes? Then take a look at active ETFs – there’s one share class, and only one.
For more stories about actively managed ETFs, visit our actively managed category.
Tisha Guerrero 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.