What is an Actively Managed ETF?

An actively managed ETF is a form of exchange-traded fund that has a manager or team making decisions on the underlying portfolio allocation, otherwise not adhering to a passive investment strategy. So it very much is active. But an actively managed ETF doesn’t usually involve full discretion, which is an important distinction from something like an actively managed mutual fund.

But you also see certain actively managed ETFs which really don’t differentiate from mutual funds at all. A popular example is ARKK, from Ark investments. This is an ETF that involves almost 100% manager discretion. These ETFs have like a 98% active share, and also don’t actually save you any money on expenses compared to actively managed mutual funds. So
really the only difference between what I am calling a “full discretion” actively managed ETF and a actively managed mutual fund is the structure.

ETFs don’t actually buy shares of stocks. Mutual funds do! ETFs create a basket based on share prices and allocations to those shares, then sells creation units of that basket. Performance of something like ARKK vs FCNTX in a melt up vs crash will really depend on what parts of the market are “melting up” and which aren’t. For example, if we saw a market anything like 1999-2000, then a fund like ARKK would probably do pretty well. It has a high concentration in momentum stocks that have been very much in favor over the past few years.

But then in 2001 and 2002, the market crashed, but only SOME markets! In 2001-2002 when tech stocks were down 90% and during a period of time that many considered the biggest crash since the great depression, the Dow was only down 17%, maybe 18%. Financials were down by even less than this. It makes sense right, it was a tech bubble, so tech got hit the worst. If we saw something similar in 2021, you would see these momentum tech stocks run way up, then crash way down. An actively managed
mutual fund SHOULD navigate this big fluctuation well, while an actively managed ETF would likely have to stay close enough to a stated benchmark to ride the wave all the way up and all the way back down again.

Видео What is an Actively Managed ETF? канала AJ Srmek