Yahoo Finance Actively Managed ETFs Are Roaring: Here's Why
After years of passive index popularity, the appeal for investing in actively managed ETFs came roaring back on stock market uncertainty stemming from high inflation and Fed’s policy (read: Should ETF Investors at all Worry About Slowing U.S. Economy?).
This is especially true as active funds, which just make up for a tiny fraction i.e. less than 6% of the $7 trillion ETF industry, have attracted about 30% of the total flows to ETFs so far this year, according to Bloomberg Intelligence. This follows a banner year for active ETFs in 2022, when they gathered roughly 14% of total flows.
The growing adoption of actively managed ETFs came as major active mutual fund providers entered the ETF fray by converting or cloning existing mutual fund strategies or adding new strategies.
Active ETFs: Pros and Cons
These ETFs are actively managed by a manager who uses various skills and attributes (like top-down approach, bottom-up approach, value investing, growth investing or absolute returns strategy) and could shift their allocations and positions according to the market environment. This helps to diversify assets in a portfolio and provide investors with a vehicle that aims to outperform a benchmark, especially in illiquid or inefficient markets or even if the odds are against it, or to give access to niche parts of the market.
Actively managed funds are not confined to low-cost, index-tracking but focusing on talented stock pickers delivering big returns.
Though these funds attempt to beat the market, they might underperform their passive counterparts as most fund managers fail to match the return of the indexes with that of the funds. Additionally, active funds are arguably expensive as these involve research expenses associated with the managers’ due diligence. These may not be popular or liquid too, which further inflates costs in the form of wide bid/ask spreads beyond the expense ratio. These funds also require daily portfolio disclosures, which could hamper the competitive portfolio composition.
Despite all drawbacks, active ETFs could generate superior risk-adjusted returns, after expenses, if chosen carefully. As such, there have been some winners so far this year, leading to outperformance even after adjusting for expenses when these are compared to their well-known benchmark or index-tracking counterparts.
ETFs in Focus
Valkyrie Bitcoin Miners ETF (WGMI) – Up 115.9%
Valkyrie Bitcoin Miners ETF is an actively managed ETF that will invest at least 80% of its net assets (plus borrowings for investment purposes) in securities of companies that derive at least 50% of their revenues or profits from bitcoin mining operations and from providing specialized chips, hardware and software or other services to companies engaged in bitcoin mining. Valkyrie Bitcoin Miners ETF holds 26 stocks in its basket with a double-digit concentration on the top two firms (read: 5 Best ETF Areas of April Up At Least 10%).
Valkyrie Bitcoin Miners ETF has amassed $9.5 million in its asset base while trading in an average daily volume of 79,000 shares. It charges 75 bps in annual fees.
Amplify Transformational Data Sharing ETF (BLOK) – Up 26.7%
Amplify Transformational Data Sharing ETF is actively managed, providing investors global exposure to a basket of leading companies engaged in the development and utilization of blockchain technologies. It holds a basket of 45 stocks, with none making up for more than 5.6% share. American firms dominate about 81% of the portfolio, followed by Asia Pacific (18%).
Amplify Transformational Data Sharing ETF has AUM of $460.7 million in its asset base and trades in an average daily volume of 180,000 shares. BLOK has an expense ratio of 0.75%.
Fidelity Blue Chip Growth ETF (FBCG) – Up 20.3%
Fidelity Blue Chip Growth ETF invests in blue-chip companies (well-known, well-established and well-capitalized), which generally have large or medium market capitalizations. These companies have above-average growth potential (stocks of these companies are often called "growth" stocks). Fidelity Blue Chip Growth ETF holds 168 securities in its basket with heavy concentration on the top five firms (read: U.S. Inflation Cools: 3 ETF Areas to Soar).
Fidelity Blue Chip Growth ETF charges 59 bps in annual fees and trades in average daily volume of 81,000 shares. It charges 59 bps in annual fees.
ATAC US Rotation ETF (RORO) – Up 19.9%
ATAC US Rotation ETF is an alternative strategy designed to help investors mitigate stock market downturns while participating in growth. It rotates offensively or defensively based on historically proven leading indicators of volatility, with the goal of taking less risk at the right time. RORO rotates around U.S. small-caps and growth (risk-on), and Treasuries (risk-off) based on Lumber relative to Gold as a risk trigger.
ATAC US Rotation ETF has accumulated $10 million in its asset base and trades in a volume of 8,000 shares a day, on average. It charges 1.15% in annual fees.
ARK Next Generation Internet ETF (ARKW) – Up 19.9%
ARK Next Generation Internet ETF is an actively managed fund focusing on companies expected to benefit from the shift in technology infrastructure to the cloud, enabling mobile, new and local services, such as companies that rely on or benefit from the increased use of shared technology, infrastructure and services, Internet-based products and services, new payment methods, big data, the internet of things, and social distribution and media. The fund holds 36 stocks in its basket.
ARK Next Generation Internet ETF has amassed $1.1 billion in its asset base and charges 88 bps in annual fees. It trades in an average daily volume of 372,000 shares.
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ARK Next Generation Internet ETF (ARKW): ETF Research Reports
Amplify Transformational Data Sharing ETF (BLOK): ETF Research Reports
Fidelity Blue Chip Growth ETF (FBCG): ETF Research Reports
ATAC US Rotation ETF (RORO): ETF Research Reports
Valkyrie Bitcoin Miners ETF (WGMI): ETF Research Reports
