Some exchange traded funds blur the line between active and passive management. For example, many ETFs track hand-tailored indexes that incorporate active strategies in an effort to produce superior performance.
The new “strategy-based” ETFs, not unlike actively managed funds, will be based on benchmarks that use various factors to identify stocks, writes Ari I. Weignberg for WSJ.com. Investors will need to perform some due diligence on their part in determining how the indices are created, what type of strategies are in place and their expected performance.
Russell Investments is one of the newer issuers to step into this specialized ETF space. Mark Roberts, head of research at Russell Investments, explains that the new Discipline ETFs will include “what an active manager might consider when selecting stocks.” [New Factor-Based ETFs from Russell]
Other fund providers with strategy-based ETFs include Guggenheim Investments, Invesco PowerShares and WisdomTree Investments.
ETFs with high-dividend stocks that follow “technical analysis” were among the first strategy-based ETFs. These niche ETFs have since expanded to include volatility, growth and value styles.
“Consistency in the rules and taking the emotion out of the product is key to a successful index strategy,” Adam Patti, chief executive of IndexIQ, said in the article.