The Benefits and Drawbacks of Active ETFs (Part 1)

Active ETFs are not an oxymoron.

Ben Johnson 14 June, 2021 | 8:00
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At first blush, investors might think that an actively managed exchange-traded fund is an oxymoron. They can be forgiven for this mistake. After all, for their first 15 years of existence, ETFs were the exclusive domain of indexers. Even today, active ETFs account for just 3.5% of the $6.6 trillion that investors have allocated to ETFs.

Active ETFs are not a contradiction, but an innovation. ETFs are just a vessel, a wrapper in which asset managers package and distribute investment strategies to investors--active, passive, and everything in between. The ETF wrapper can deliver material benefits for investors partnering with active managers. But, as with everything, there are trade-offs. Not every strategy is a good fit for an ETF. Also, depending on the strategy, ETFs' benefits might not always materialize.

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About Author

Ben Johnson  Ben Johnson, CFA is the Director of Passive Fund Research with Morningstar.

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