Specifically, Lee points to the growing number of “quasi-actively managed strategies, or ‘factor’ strategies” that utilize enhanced, smart-beta indexing methodologies.
Additionally, Lee argues that the relatively small active ETF space could become more popular if fees decline, more rock star managers get into the space and more investors familiarize themselves with the investment.
“That’ll take a while, I think,” Lee added. “ETFs for the foreseeable future will be passive.”
When it comes to investing in ETFs, Lee suggests investors should follow three rules:
- “Stick with the most boring, highly liquid, low-cost ETFs you can find.” Most investment portfolios should include large and broad “core” holdings.
- “If it’s leveraged, can be classified as an ‘alternative,’ or promises something brand new, ignore it.” Newer fund products can be speculative or tactical in nature as they track smaller markets.
- “Stick with big sponsors. They’re far less likely to leave in in the lurch.” Large fund sponsors are less likely to shutter an ETF as it might hurt their brand.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.
