Are you considering investing in Exchange-Traded Funds (ETFs)? You may have heard that ETFs are generally known for their passive strategies, but did you know that there has been a significant surge in actively managed ETFs in recent years? This trend is driven by investors seeking lower costs and more precision in their investments.
According to Morningstar, active ETFs represented just over 2% of the U.S. ETF market at the beginning of 2019. However, they have been growing at a rapid pace, with a market share of over 7% in 2024. This growth can be attributed to factors such as the streamlining of the ETF approval process by the U.S. Securities and Exchange Commission in 2019, as well as the increasing demand for lower-cost funds among investors and advisors.
Despite the growth of active ETFs, only a fraction of issuers have been successful in this market. As of March 31, the top 10 issuers controlled 74% of assets, and only 40% of active stock ETFs had more than $100 million in assets as of October. It is essential for investors to focus on the health and size of an active ETF, as those with lower assets may carry a higher risk.
One of the key advantages of active ETFs is their ability to make tactical adjustments to outperform a specific benchmark. While passive ETFs replicate an index, active managers can navigate market volatility more smoothly by making strategic moves. Additionally, active ETFs can offer unique strategies compared to traditional index funds.
It is important to note that the average fee for active ETFs is around 0.65%, which is 36% cheaper than the average mutual fund. However, there is a potential risk of underperformance, as many active managers struggle to beat their benchmarks. It is crucial for investors to carefully evaluate the performance data of active ETFs before making an investment decision.
At Extreme Investor Network, we understand the evolving landscape of ETF investing and are committed to providing valuable insights and resources to help you make informed investment decisions. Stay tuned for more expert tips and analysis on navigating the world of personal finance and investing.