Active ETFs may include stocks, bonds, cash equivalents and even other ETFs within their portfolios. The ETF strategies may vary, tracking an investment manager’s specific picks, reflect a mutual fund or adhere to an investment objective.
However, actively managed ETFs have not caught on, representing only 0.5% of the $1.2 trillion ETF market, as the role of arbitrage in ETFs have deterred providers. Since ETFs have to provide full transparency to Authorized Participants to keep an ETF’s price close to its net asset value, active ETFs may be open to front running, or investors trying to mimic a fund manager’s secret sauce. [In-Kind Creations and Redemptions]
For past stories in this series, visit our “What is an ETF?” category.
Max Chen contributed to this article.