Get your finance in order, with wealth management's must-read stories everyday!

Top Picks for Actively Managed ETFs

Triston Martin

Oct 25, 2023

The financial landscape has witnessed a surge in investment options, with ETFs standing out prominently. Among these, actively managed ETFs present an intriguing proposition for investors looking to marry the advantages of ETFs with the potential for market outperformance. Such ETFs aim to achieve better returns than a benchmark index by leveraging expert stock-picking skills.

Why Choose Actively Managed ETFs?

For the discerning investor, actively managed ETFs offer a compelling proposition. They seamlessly combine the inherent strengths of ETFs, including their tax advantages and often more competitive ETF management fees, with the potential to surpass market benchmarks. This dual capability provides an attractive alternative for amplifying their gains.

Moreover, the variety of actively managed ETFs is extensive. Some draw inspiration from well-established mutual funds, while others introduce innovative strategies to the market. Their growing popularity is evidenced by the expanding range of offerings tailored to various investment objectives.

Top Performers in Actively Managed ETFs

While the financial markets always have their fair share of ups and downs, some actively managed ETFs have managed to shine brighter than others:

Simplify Volatility Premium ETF (SVOL)

In the turbulent waters of the stock market, SVOL stands as a beacon of stability. With a commendable 5.6% growth over the past year, it has left many of its large-blend fund peers trailing with an average loss of 6.3%. How does it manage this? By inversely tracking the performance of the Cboe Volatility Index (VIX) and concurrently offering investment income channels.

Alpha Architect U.S. Quantitative Momentum ETF (QMOM)

This ETF, positioned in the mid-cap growth segment, showcases an admirable growth story. Valued at an impressive $145.8 million, it reported a rise of 6.2%, contrary to its category's average downturn of 9.9%. The secret sauce? A strategy that leans heavily on stocks with a track record of robust performance. It's worth noting that energy stocks, which have been the talk of the financial community over the past year, comprise 51% of QMOM's portfolio.

Actively Managed ETFs and Energy Stocks

In the investment circuit, energy stocks made a substantial impact last year. With a performance hard to ignore, the Morningstar US Energy Index surged with a growth of 50.8%. In comparison, the Morningstar US Market Index faced a setback, recording a decline of 7.4%. This energy sector growth wasn't just a fleeting trend but a significant development that shaped the strategy of many investment portfolios.

Best Actively managed ETFs, always looking for lucrative sectors, took note. A leading name in this category, Avantis ETFs, steered by the expertise of American Century, promptly integrated this trend into their strategy. These ETFs, known for their proactive approach, maintained a considerable weightage in energy stocks, thereby setting them apart from their counterparts. Getting to understand some specifics:

Avantis U.S. Large Cap Value ETF (AVLV)

A relatively new entrant, introduced in 2021, this fund demonstrated its mettle with a notable 5.6% gain. This performance quickly outstripped the lukewarm 0.6% growth seen by the average large-value fund.

Avantis U.S. Equity ETF (AVUS)

Known for its expansive stock selection, this ETF showcased resilience. While other funds in the large-blend category faced a decline of 6.3%, AVUS limited its losses to just 2.1%.

The Role of Dividends in Actively Managed ETFs

Dividends have always been a magnet for investors, symbolizing a company's profitability and stability. In the domain of ETFs, dividend payouts can influence performance metrics. Dividend consistency and growth can provide a steady income and indicate a company's financial health and prospects.

T. Rowe Price Dividend Growth ETF is a good example. Boasting a significant asset base of $289.5 million, this ETF's strategy is laser-focused. By anchoring its investments in stalwarts like Eli Lilly and EOG Resources, which have a reputation for enhancing their dividends, TDVG effectively contained its losses. Over the preceding year, while the tumultuous market waters rocked many boats, this ETF's loss was restricted to just 1.4%.

Best Actively managed ETFs prioritizing dividends typically zero in on firms with a solid financial backbone. This emphasis ensures regular payouts for investors and offers a buffer during market downturns. It's a testament to the power of dividends and their role in portfolio management.

Factors Influencing the Success of Actively Managed ETFs

Actively managed ETFs have surged in popularity, with various factors influencing their success. Investors must consider these elements when making investment decisions. With many options available, understanding these factors becomes paramount for achieving desired outcomes.

Macro-economic Influences

Every financial instrument responds to macroeconomic factors, and actively managed ETFs are no exception. Economic growth rates, interest rates, inflation, and global economic events can directly impact the performance of stocks within these ETFs.

For instance, a rise in interest rates typically affects companies that rely heavily on borrowing. Such changes can then influence the stock-picking decisions of fund managers. Furthermore, economic growth rates can provide indications of sectors poised for expansion. The actively managed ETFs aligning with these growth sectors often benefit the most.

Inflation, on the other hand, can erode purchasing power. ETFs focused on sectors resistant to inflationary pressures, like certain commodities, might present more robust investment opportunities during high inflation periods.

Global economic events like trade wars or international policy changes can also sway market sentiments. Actively managed ETFs with diversified global exposure or focus on resilient sectors can act as a hedge during such volatile times.

Role of Management Expertise

The core of actively managed ETFs lies in the expertise of their management teams. Selecting winning stocks requires knowledge and experience to interpret market signals correctly.

Investors should prioritize management track record when choosing the best actively managed ETFs. Although past performance does not guarantee future results, it can reveal the team's ability to handle market fluctuations.

Furthermore, ETF management fees also come into play here. A seasoned management team might justify higher fees, but investors should weigh this against potential returns. It's a delicate balance between paying for expertise and ensuring profitability.

Related Stories

Privacy Policy | Terms of Use

© 2023

Contact us at: [email protected]