Investors have been flocking to actively managed ETFs, with their assets under management growing by five times the number of passive funds in 2024, according to a Morningstar report. As these funds chase high performance, some analysts raised concerns whether their returns justify higher fees and other risks. “Proactive funding adds additional risks and doesn’t always translate into returns, especially given the higher fees,” said Roxanna Islam, head of industry and industry research at Financial Data and Insights Platform TMX Vettafi. These attempts to beat the benchmarks The funds returned by the index are generally higher than those of passive peers who track market indexes and require less active management. According to Morningstar, the average management fee for Active ETFs is 0.63%, while the average management fee for passive funds is 0.44%. “They are usually a little more expensive than traditional passive ETF vehicles, and investors may struggle to understand the benefits they get,” said Don Calcagni, chief investment officer at Mercer Advisors. “More investment training and refined execution. CNBC talks to market observers who express active ETFs can perform better in uncertain or volatile markets, while skilled management adds value. Similarly, with an average fee of 1.02% compared to active mutual funds, Active ETFs are relatively cheap. Morningstar data shows that the average annual rate of return of active ETFs in the United States over five years is 5.57%, while the passive ETF is 4.27%. Even with higher fees, their performance seems attractive enough – but there are other fees. Although the cost of “invisible” is cheaper than mutual funds, Active ETFs usually bid more widely and propose spreads, especially for new funds, he pointed out Gareth Nicholson, chief investment officer of Nomura International Wealth Management team. The bid spread represents the gap between the highest price the buyer is preparing to pay for the asset and the seller is least willing to accept. Extensive bid spreads usually indicate lower market liquidity and may result in higher transaction costs for traders to compensate liquidity. “These invisible transaction costs may be rewarding,” he told CNBC. Nicholson added that active ETFs traded in real time are also more susceptible to market volatility, unlike mutual funds that price once a day. Nomura chief investment officer said that similar to mutual funds, only a small percentage of active ETFs have always outperformed their benchmarks. Data provided by Morningstar shows that in 2024, the average alpha or performance of Active ETFs in the United States exceeds peers by Active ETFs (80% of global content) is higher than their peers. One type of particularly risky activity ETF is a single-share fund. When Nvidia’s stock decline sharply last month, single stocks used ETFs to bet on the company’s growth, with record-breaking single-day losses of more than 33%, further highlighting the key risks of a positive strategy. “Leverage will amplify volatility – when the market opposes you, the loss will amplify.” Leveraged ETFs fall under the active management category, where these funds are designed to be offered two or three times a day in a single day Stock performance. The other side is: the loss is also magnified.
Active ETFs see explosive growth – Experts warn them of costs and risks | Real Time Headlines
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