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Active ETFs Gaining Priority: Top Performers of the Past Year

Sanghamitra Saha

Last year was a solid one for equities, with the S&P 500 putting up the best performance since 2013 by gaining about 29%. But the ascent was not hurdle-free. Occasional trade tensions between the United States and China, constant volatility in the oil patch and a flattening yield curve in the United States have invoked fears from time to time.

Even if the United States and China have cut the preliminary trade deal and are on their way to wipe off some increased tariffs, global growth worries are not sparing investors. International Monetary Fund has been warning about the global growth slowdown repeatedly (read: IMF Cuts Global Growth Outlook: 5 ETF Areas to Bet On).

Against this background, investors and fund managers have no other option than be prudent with the changing dynamics of the market. And in order to do so, several investors opted for active ETFs.

An actively-managed ETF does have a benchmark index but managers may alter sector allocations, market-time trades or shift from the index constituents if they consider appropriate, per investopedia.

Investors should note that active funds are arguably expensive as these involve research expenses associated with the manager’s due diligence and additional cost in the form of a wide bid/ask spread beyond the expense ratio.

Active Management Seems Most Sought-After

There has been a surge in actively-managed ETFs of late. The Brown Brothers Harriman’s ETF survey found that 57% of global ETF investors intend to raise their exposure to actively-managed ETFs in the coming year. Active management takes the top spot in the list of strategies U.S. ETF investors favor this year, across asset classes.

The difference in expense ratios between active and passive (management/investing) has been reducing of late given a spurt in launch of lower-cost products. The average expense ratio of about 968 regular passive ETFs is 0.42% (per xtf.com), while the average expense ratio of 296 regular active ETFs is 0.63%.

Return-wise as well, active ETFs are not far behind. Passively-managed funds have returned 10.8% in the past year versus 9.51% gains in active ETFs, while the figure for passive ones is 0.48% in the volatile 2020 versus 0.83% gains by active ones (read: Top ETF Stories of January 2020).

Some actively-managed ETFs have outperformed the SPDR S&P 500 ETF SPY (up 21.9%) in the past year (as of Feb 5, 2020). Below we highlight some top-performing active ETFs of the past year that breezed past the S&P 500.

iShares Evolved U.S. Technology ETF IETC – Up 37.8%

The iShares Evolved U.S. Technology ETF seeks to provide access to U.S. companies with technology exposure (read: Microsoft's Azure Returns to Growth: 5 ETFs to Buy).

ARK Next Generation Internet ETF ARKW – Up 30.7%

The ARK Next Generation Internet ETF is actively managed and seeks long-term growth of capital by investing under normal circumstances, primarily in domestic and U.S. exchange traded foreign equity securities of companies that are relevant to the theme of next-generation Internet (read: Tech ETFs & Stocks Outperforming in 2020).

ARK Fintech Innovation ETF ARKF – Up 29.9%

The ARK Fintech Innovation ETF is actively managed and seeks long-term growth of capital. Information Technology (40.9%), Consumer Discretionary (19%), Financials (18.4%) and Communication Services (17.6%) are the top four sectors of the fund.

MFAM Small-Cap Growth ETF MFMS – Up 28.8%

The MFAM Small-Cap Growth ETF seeks to achieve long-term capital appreciation. Healthcare (35.0%), Information Technology (25.1%), Industrials (19.2%) and Real Estate (12.8%) are the top four sectors of the fund.

Franklin Liberty U.S. Low Volatility ETF FLLV – Up 26.4%

The Franklin Liberty U.S. Low Volatility ETF seeks capital appreciation with an emphasis on lower volatility than the broader equity market, as measured by the Russell 1000 Index. Information Technology (23.1%), Health care (13.69%) and Financials (13.28%) are the top three sectors of the fund.

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ARK Next Generation Internet ETF (ARKW): ETF Research Reports
 
Franklin Liberty U.S. Low Volatility ETF (FLLV): ETF Research Reports
 
SPDR S&P 500 ETF (SPY): ETF Research Reports
 
iShares Evolved U.S. Technology ETF (IETC): ETF Research Reports
 
MFAM Small-Cap Growth ETF (MFMS): ETF Research Reports
 
ARK Fintech Innovation ETF (ARKF): ETF Research Reports
 
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