Live at Exchange: Everything Advisors Need to Know About Active ETFs

Active ETFs are punching above their weight.

While assets in active ETFs currently amount to just 4% of all ETF assets, 11% of net inflows into ETFs in the first quarter have gone into active funds, Todd Rosenbluth, head of research at ETF Trends and ETF Database, said today at Exchange: An ETF Experience.

“Investors are gravitating toward and getting more comfortable with actively managed ETFs,” Rosenbluth said. “They’re getting more comfortable working with advisors that are doing so — in fact, they’re looking for their advisors to bring them actively managed ETFs.”

Rosenbluth pointed to the increasing variety of active ETFs. There are still issuers entering the arena with new products, such as DoubleLine, which launched its first active ETF strategies just last week. 

Similar to an index ETF, active ETFs trade intraday on an exchange, charge relatively low fees, are tax-efficient, and can be fully transparent in disclosing their holdings, Rosenbluth said.

However, like an active mutual fund, the fund manager can adjust to fundamentals and/or valuation, the manager has discretion to trade or not when they want to, and the manager seeks to outperform, not replicate, an index.

There are six types of active equity ETFs: defined outcome ETFs, covered call ETFs, core equity ETFs, thematic equity ETFs, ultra-short ETFs, and core bond ETFs.

The Innovator U.S. Equity Buffer ETF April (BAPR), a defined outcome ETF, seeks to match the return of the S&P 500 over a one-year period and actively uses options to provide downside protection and upside caps and can be held indefinitely, although outcomes are reset.

The JPMorgan Equity Premium Income ETF (JEPI), a covered call ETF, uses a bottom-up method for stock picks based on in-house assessment for valuation and low risk. The fund generates additional income using covered call options and provides equity exposure with reduced volatility. 

The T. Rowe Price Blue Chip Growth ETF (TCHP), a core equity ETF, is focused on companies with leading market positions, seasoned management, and strong financial fundamentals.

A thematic offering, the ARK Innovation ETF (ARKK), owns disruptively innovative companies in industries like artificial intelligence, automation, DNA technologies, and fintech, among others. Block, Coinbase, Roku, Teledoc Health, and Tesla are among its top positions.

In the ultra-short category, the PIMCO Enhanced Short Maturity ETF (MINT) focuses on the preservation of capital and income generation by investing in a mix of investment-grade credit, securitized debt, and Treasuries.

The Franklin Liberty US Core Bond (FLCB), a core bond offering, focuses on total return but is benchmark-aware. The fund invests primarily in Treasuries and low-investment-grade credit.

For more news, information, and strategy, visit ETF Trends.