ETFs Can Only Get More Active From Here

In today’s market landscape, gains are important, but cost is just as much of a factor when considering an ETF. Investors have generally steered away from active funds, which cost more than those that track a passive index, but times could be changing and ETFs can only get more active from here.

“Like consumers of all types, investors are opting for discounts whenever possible, and if that means avoiding money managers who take a hands-on approach, so be it,” wrote Andrea Riquier in MarketWatch. “The ratings firm Morningstar grabbed headlines this summer by announcing that the amount of assets in so-called “passively-managed” mutual and exchange-traded funds topped those that are actively managed for the first time.”

‘Among ETFs in particular, the division is even starker: a whopping 98% of all ETF funds are passively managed, meaning they follow a pre-determined index, an imbalance that often makes it seem like “ETF” is synonymous with ‘passive,'” she added. “But active investors aren’t conceding defeat. As ETFs mature and the appeal of their structure becomes more accepted, fund managers will increasingly opt to use an ETF framework, rather than a mutual fund, as the backbone for their investing strategies.”

Other industry experts are agreeing with the notion that while passive funds may dominate the ETF space, active may not be too far behind.

“I just think the pendulum has swung so far,” Catherine Wood, CEO and founder of ARK Invest, told MarketWatch. “So many investors are focused on performing exactly in line with the indexes, but we see so much opportunity that’s future-oriented that’s not captured in the indexes. I think active management is going to have its day in the sun and the indexers will lag behind innovation.”

An Active Rotation ETF to Consider

Strategy Shares US Market Rotation Strategy ETF (NYSEArca: HUSE) is an actively managed ETF that invests in companies that are organized in the US and included in the S&P Composite 1500, which is comprised of large-cap, mid-cap and small-cap companies. The ETF may over- or under-weight certain industry sectors and segments of the S&P Composite 1500, depending on which the managers believe to have the greatest or least potential for capital appreciation given the current market environment.

This ETF may be appropriate for long-term investors looking for a unique approach to pursuing capital appreciation. It may provide an important overlay to the investor’s portfolio as the advisors seek to enhance performance through emphasizing the market sectors and segments believed most promising.

Different sectors within the S&P Composite 1500 typically outperform the market at various times. Market environments may cause certain sectors of businesses to perform more favorably than others. For instance, when technology companies are performing relatively well, financial companies may be taking a hit. The advisor attempts to identify the companies that may experience more profitability given the current economic cycle and overweight its portfolio in companies within that sector.

For more market trends, visit ETF Trends.