Since they launched, actively managed exchange traded funds (ETFs) have been at the center of a hearty debate about their value, their advantages and their future.
Not everyone agrees on active management; some in the industry are excited by the idea, while others are more pessimistic about the products.
Financial Web recently broke it all down and outlined the pros and cons of active management in ETF form.
- Potential for more returns: One of the biggest advantages of investing in an actively managed ETFs is that you can sometimes realize additional gains. With traditional forms of ETFs, fund managers do not actively trade the underlying assets since they’re tracking an index. Fund managers can sometimes bring in additional returns for the investors, beating the return that you get with a passive fund. [Actively Managed ETFs and the NAV?]
- Liquidity: An actively managed ETF is very similar to a mutual fund, however, where actively managed ETFs are superior is in the area of liquidity. ETFs give an opportunity to buy and sell any time of the day because of the extra liquidity.
- Opportunity for mistakes: Anytime that you introduce active management techniques into a particular fund, whether it’s mutual funds or ETF, the door is open for mistakes. With active management, you have to rely on a fund manager to choose investments that will perform well. [Are Actively Managed ETFs a Flop?]
- More costs: One of the big selling points of most ETFs is that they are cheaper than mutual funds on average. When you invest in an actively managed ETF, you have to deal with the increased management costs. However, these costs can still be lower than what most mutual funds would charge. Compare carefully and proceed accordingly.
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.