Just before the pandemic, the decade-long bull run saw passive strategies come to the forefront while interest in active funds took a back seat. Well, times are changing and active ETFs could be falling back in favor with financial advisors based on a recent MarketWatch report.
Per the report, one statistic that stands out “goes a long way toward summing up the state of play in actively-managed exchange-traded funds: the share of all ETFs run by active managers has increased a whopping 50% over the past 12 months: to 3%, according to data from CFRA/First Bridge, from 2% last year. Put another way, there is enormous industry enthusiasm and buzz — not to mention media attention — over something that’s taking a while to materialize, and whose eventual impact is altogether uncertain.”
“I don’t know if there are any categories in which it’s better to choose an active manager,” said Todd Rosenbluth, Head of Mutual Fund and ETF Research for CFRA. “If you can find the right manager, that’s great, but he or she could just as easily not perform in the future.”
Additional data on fund performance is even more eye-opening with studies showing “that active managers not only don’t beat passive strategies over the long term – but in many cases, their funds don’t even survive. Investors seem to understand that reality – as do advisers.”
“The data and evidence pretty clear about the challenges of traditional active managers underperforming,” said Nick Ryder, CIO of Philadelphia-based Kathmere Capital Management . “We also look at hedge fund data – the best and the brightest have struggled.”
Nevertheless, one area where ETF investors might want active exposure is in the bond market.
Active Bond ETF Options
Fixed income investors understand the challenges in today’s low-yield environment, which means it could help to get more exposure to more active funds like the JPMorgan Ultra-Short Income ETF (JPST), which seeks to provide current income while seeking to maintain a low volatility of principal. Under normal circumstances, the fund seeks to achieve its investment objective by investing at least 80% of its assets in investment grade, U.S. dollar-denominated short-term fixed, variable, and floating rate debt.
Another short duration bond ETF to take a look at is the Xtrackers Short Duration High Yield Bond ETF (SHYL). The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Solactive USD High Yield Corporates Total Market 0-5 Year Index.
The fund will invest at least 80% of its total assets (but typically far more) in component securities of the underlying index. The underlying index is designed to track the performance of short-term publicly issued U.S. dollar-denominated below investment grade corporate debt.