Among the most attractive traits found in ETFs, a low expense ratio has been a major selling point as passive ETFs charge a fraction of the fees found in their active counterparts. High fees have also contributed to the long underperformance of many active managers seeking to outperform a major benchmark.
McQuown also pointed to the growth of alternative index-based strategies or smart beta ETFs that combine both active and passive qualities. The smart beta funds actively trade based on the quantitative strategies research developed through a passive index-based wrapper.
“Where passive ends and active begins or vice versa is not that easy to determine. At Dimensional we stay away from talking about it too much but we certainly are passive,” McQuown said. “Smart beta is like hedge funds. Another cliché. Both are excuses for raising fees.”
For more information on passive ETFs, visit our indexing category.