Resources

The benefits and risks of Active ETFs

By AMP Capital

Active ETFs combine the benefits of passive ETFs with the benefits of traditional actively managed funds.

Active ETFs deliver investors a number of key features:

Outperformance: The biggest benefit of active ETFs is the opportunity to outperform indexes and generate higher returns. Unlike passively managed ETFs, which simply track an index, the managers of Active ETFs are working to deliver better returns than their respective benchmarks or objectives. Active management and the chance to outperform are becoming increasingly important in the low-return, high-volatility environment that investors currently face.
Easy to buy and sell: Unlike traditional managed funds, actively managed ETFs can be bought and sold throughout the day using a broker. Investors can use the fund’s ticker code to trade instantly.
Pricing: Because they are traded during the day, investors can monitor performance in real time. Traditional managed funds only provide valuations at the end of each day.
No time-consuming paperwork: Unlike a traditional managed fund, active ETFs don’t require filling out forms to buy into the fund.
Low cost: Many active ETFs charge lower fees than traditional actively managed funds. Because they can be bought directly on the stock exchange, if an adviser is involved, they can avoid the additional charge of platform fees.
Simple portfolio management: Active ETFs can make portfolio management easier and simpler. They can be held in one location alongside other shares and ETFs traded on the stock exchange.
No minimum requirements: Active ETFs don’t have a minimum amount you must invest, allowing investors with smaller sized portfolios greater access to active management.
Diversification: Like traditional passive ETFs and managed funds, active ETFs provide immediate access to a wide range of domestic and global investments through one simple trade.

But active ETFs do carry some risks:

Underperformance: An active ETF may underperform their benchmark.
ASX trading price: The trading price of units on the ASX may differ from the net asset value (NAV) per unit and the indicative NAV (iNAV).
Intraday market shocks: Big market shocks that trigger steep falls during the trading day could mean that investors who want to enter or exit may buy at prices significantly different from valuations.
Managing intraday market risk: If a big shock happens the active ETF manager can consider events and movement in futures prices, and factor that into the iNAV (indicative net asset value) that is provided throughout the day. The active ETF manager could also broaden the spread – the gap between buy and selling prices. Or if the situation was serious enough, the manager could stop ‘making a market’ in the active ETF until they have greater certainty about market conditions.
ASX trading: In certain circumstances the ASX could suspend trading in the units of the active ETF, and unitholders in that event could not be able to buy and sell units on the ASX.
Portfolio transparency: Active ETF managers generally only disclose their portfolio holdings every three months.

 

While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in it. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. Before making any investment decisions you should consider the appropriateness of the information, and seek professional advice having regard to your own circumstances.

  • Growth
  • Other Publications
  • Resources

Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

Cookies & Tracking on our website.  We use basic cookies to help remember selections you make on the website and to make the site work. We also use non-essential cookies, website tracking as well as analytics - so we can amongst other things, show which of our products and services may be relevant for you, and tailor marketing (if you have agreed to this). More details about our use of cookies and website analytics can be found here
You can turn off cookie collection and/or website tracking by updating your cookies & tracking preferences in your browser settings.