We will discuss in detail on these Outperforming Actively Managed Equity ETF.

What is an Actively Managed ETF

Behind every actively managed ETF, a Portfolio Manager adjusts the investments within the fund daily. Rebalancing is subject to the set of rules like the Semi Transparent ETFs where a disclosure of Holdings cant be daily to Exchanges protecting Fund Managers research and his Funds Holding Data and strategy.

Active Fund Manager main aim is to beat the benchmark using research and strategies. Traditionally Actively managed ETFs and Passively managed ETFs report their holding positions daily and are priced throughout the day on Stock Exchanges.

This is the major difference between an actively managed ETF and a Actively Managed Mutual fund.

Advantages of Actively Managed ETFs

  • Higher returns :  A passively managed ETF runs and track the performance of a benchmark, actively managed ETFs tend to outperform the benchmark through investment decisions by portfolio managers and research analysts. Risk of fund underperform the benchmark is present there too .
  • Lower cost : The structure of an actively managed ETF makes it to have lower expenses ratios than an actively managed mutual fund.
  • Tax Benefit : The share creation result in ETFs being more tax-efficient when compared to mutual fund . Process is done “in-kind,” which is not a taxable event.
  • Liquidity:  Since its traded on Stock Exchanges like Passively Managed ETFs , It allows Traders to do trading on these ETFs too . High Liquidity allows you to sell it anytime.

Disadvantages of Actively Managed ETFs

  • Daily Disclosure of Holding % :  This is a major problem as full disclosure might impact an active manager’s ability to make adjustments, except semi-transparent ETFs as they do not have this requirement. 
  • Higher costs compared to Passive ETFs : Since these are actively Managed Funds and require a Team of Portfolio Managers and Analysts to manage this , It brings an additional cost as compared to Passively Managed ETF.

Challenges that Actively Managed ETF have seen recently.

  • Market timing doesn’t really work, it’s hard to be right going in and out.
  • High fees and commissions eat up most of Alpha
  • Competition in Industry

Here is our List of Outperforming Actively Managed Equity ETF:

  • Avantis U.S. Equity ETF (AVUS) : This Active ETF invests mainly in high quality tech and pharma. Companies Like Apple, Microsoft, Amazon, Facebook & Johnson and Johnson are part of this ETF. Diversification and a pretty reasonable price of 15 basis points make it outperforming ETF. Avantis portfolio Managers instead of relying on the index or waiting for a re balance which may happen monthly , quarterly , semiannually or even annually ,they look rebalancing every day to account for the things  . They Don’t just normally look at market cap but also look at balance sheet profitability . When you combine both with an index along with an active management you get a best of both worlds ..
  • SPDR S&P Semiconductor ETF (XSD) : This ETF is meant to provide investment results that correspond, generally to the total return performance of an index derived from the semiconductor segment of a U.S. total market composite index before fees and expenses. It invests at least 80%, of its total assets in the securities representing the semiconductors segment of the S&P Total Market Index (“S&P TMI”).

Small Cap is another Sector that has outperformed Large Caps and can be looked into . With Small Sector , you should look at holding it for a longer period of 10 Years . What a portfolio managers also accounts when they choose small cap securities , they look for other things like balance sheet and profitability , so it’s not just that if you hold it for a long period of time it will outperform but when you start adding in other metrics like profitability or looking at the balance sheet and taking into account , you choose the right Company.

Over time small cap might outperform Large Caps ,  It might see little out performances elsewhere but it may take a long time and the small cap ETFs tend to take the lead.

Please Read out Other Article on ETF : https://equitygyan74899394.wordpress.com/2021/11/05/ishares-etf-vs-vanguard/