Displaying items by tag: active funds

Actively managed ETFs combine the flexibility of active management with the tax efficiency of ETFs, making them a compelling option for taxable portfolios. Unlike mutual funds, ETFs often use in-kind redemptions to minimize taxable capital gains, helping investors defer taxes and achieve greater compounded returns over time. 

While tax efficiency is a significant advantage, investors should also evaluate the manager’s skill, market opportunities, and the cost-effectiveness of these strategies when selecting active ETFs. 

Incorporating active ETFs into a portfolio can be a strategic way to balance the potential for alpha with reduced tax drag, particularly in equity strategies where minimizing distributions is key. 

Finsum: A thoughtful approach to selecting active ETFs can enhance after-tax returns and align portfolios with long-term investment goals.

The predominant sentiment in financial markets is that active funds have an edge during volatile periods because picks are more apparent and therefore easier to execute. However, according to the Euro Securities and Market Authority, active funds didn’t outperform passive funds during the critical stressed market conditions from February 19th to June 30th, 2020. This full cycle in financial markets didn’t give active funds an advantage and actually underperformed by 6.6% annualized in that period. This research backs up previous reports by morningstar that active funds didn’t outperform during high volatility Covid-19.

Finsum: Covid-19’s cycle was the K-shaped recovery Economists dream of, so this isn’t the nail in the coffin for active management.

(New York)

Active funds have been much maligned in the press over the last couple of years. The rise of passive investing has drawn the value of active investing into question, and the media has focused lot of attention on large groups of underperforming funds. That said, active funds, at least in fixed income, are winning right now. In every period from one to ten-years, actively managed bond funds have outperformed ETFs. Such funds are less constrained in their ability to seek out safe high yields, whether that be in junk bonds or emerging markets.

FINSUM: In many ways this makes sense, as there are many more bonds than there are equities, which means that there is likely more alpha to be generated through an unconstrained approach.