ETF Investors Have Found A Way To Use Active Strategies For Less

ETF Investors Have Found A Way To Use Active Strategies For Less
Theodora Lee Joseph, CFA

7 months ago2 mins

Despite their tiring hard work, very few active fund managers consistently outperform the market, especially when you account for trading and performance fees. So instead, plenty of retail investors have been choosing index exchange-traded funds (ETFs) – a type of passive investment fund that tracks the market – to generate returns without doing the heavy lifting. Now, though, active ETFs – which combine the benefits of both active and passive investing – are gaining popularity, especially because they don’t carry the high fees traditionally associated with active investing.

Actively managed ETFs still have much higher fees than passive ETFs, mind you: VettaFi calculates that active funds have an average expense ratio of 0.7% versus 0.16% for passive ones. But that hasn’t put investors off. Active options have made up about 30% of total ETF investments (light blue bar) so far this year. That makes sense: those ETFs give ordinary investors access to more complex trading strategies, often involving the use of options. Some of the most popular picks this year include JPMorgan’s Equity Premium Income ETF (ticker: JEPI, expense ratio: 0.35%) and the Nasdaq Equity Premium Income ETF (JEPQ, 0.35%) both of which offer a double-digit dividend yield, and Dimensional’s U.S. Core Equity 2 ETF (DFAC, 0.17%).

A few active ETFs have actually fallen out of favor, though. Against a backdrop of tightening credit, ETFs that invest in corporate loans with weak credit ratings like State Street’s SPDR Blackstone Senior Loan ETF (SRLN, 0.7%) have been tossed aside. So just bear in mind that while active ETFs with option strategies can offer you more opportunities at a lower cost, you still need to be discerning when you pick. If possible, look for ones with a long track record and low fees. Not all strategies work successfully in different macro environments, so you’ll need to be more agile with active ETFs.



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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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