Thanks to continued bullish trend in the U.S. financial markets, 2013 has been the banner year for investors as they continue to pour money into equities and equity-related ETFs. Though there are winners in every corner of the equity ETF space, one segment that is doing quite well this year is that of the actively managed ETFs.
Though actively managed ETFs account for a tiny fraction of the $1.5 trillion plus U.S. ETF market, these are slowly gaining popularity with 15 new product launches so far this year (read: 3 Sector ETFs Crushing the Market in 2013).
This corner of the ETF market is still in the initial stage of development and often overlooked by investors due to its lower liquidity and higher costs compared with passive funds. There are a total of 65 unleveraged active ETFs in the space with total AUM of nearly $15 billion.
Active funds are arguably expensive as these involve research expenses associated with the manager’s due diligence and additional cost in the form of wide bid/ask spread beyond the expense ratio. Further, daily portfolio disclosure requirement somewhat hampers the competitive portfolio composition.
Despite this, most of the active ETFs clearly outpaced the broad market fund (SPY) by wide margins from a year-to-date look. Below, we take a closer look at five actively managed ETFs that have beaten out their index-tracking counterparts in terms of year-to-date returns even when adjusting for expenses.
While these funds may not be the popular or liquid, these could be interesting picks for investors considering a more active approach and seeking to target the growing aspects of the ETF industry with innovative strategies (see more in the Zacks ETF Center).
This fund seeks to generate long-term returns in excess of the total returns of the Russell 3000 index with less volatility by focusing on liquidity and fundamental characteristics. This is done by using extensive historical research from TrimTabs, which focuses on stock prices as a function of supply and demand rather than value.
The portfolio manager screens approximately 3,000 stocks on a daily basis and invests equally in 100 highest ranked stocks that have their ‘float shrink’ in the trailing 120 days, increased their free cash flow and not their increased their leverage ratio (read: Overweight These Equal Weight ETFs in Your Portfolio). From a sector look, consumer discretionary takes the top spot at 26%, followed by information technology (20%) and industrials (15%).
The product has amassed $75.5 million in its asset base while sees low volume of nearly 24,000 shares a day. The fund charges 99 bps in annual fees and added about 36.85% in the year-to-date time frame.
This ETF seeks long-term capital appreciation by investing in large cap securities that Columbia management believes have above-average growth prospects. The portfolio manager combines fundamental and quantitative analysis such as financial condition of the company, overall economic and market conditions with risk management, in selecting stocks for the portfolio (read: Top Ranked Large Cap ETF in Focus: IWL).
This approach creates a basket of 54 securities with highest allocations going to Google (GOOG), Michael Kors Holdings (KORS) and Celgene (CELG). The three firms combined to make up for nearly 12%. From a sector perspective, information technology dominate the portfolio returns with 39% share while healthcare and consumer cyclical round off to the next two spots at 19% and 18%, respectively.
The fund has $11.7 million in AUM and trades in little volume of less than 5,000 shares. The ETF charges 0.86% in net fees and expenses from investors. RWG returned over 32% in the year-to-date time frame.
This product seeks long-term capital appreciation in excess of the S&P 500 index. This looks to be done by selecting a portfolio of up to 500 largest U.S. securities using a weighted allocation system based on consensus analyst estimates of the present value of future expected earnings, giving a quantitative approach to FWDD’s investment process (see: all the Large Cap ETFs here).
This concept generates a diversified portfolio in terms of both sectors and securities. Though the fund is tilted toward consumer discretionary at 20%, it assigns a double-digit allocation to information technology, financials, industrials, and healthcare. The spread out exposure is further confirmed by the fund’s top holdings, as none of the securities accounts for more than 1% of the total assets.
The net expense ratio comes in at 1.25% and average daily volume is less than 6,000 shares a day. FWDD has managed assets worth $20.7 million so far and is up nearly 32% year-to-date.
This fund provides exposure to the large cap value segment of the U.S. market by using a bottom-up stock selection approach. Here, the portfolio manager focuses on individual company fundamentals rather than a particular industry.
This strategy gives a portfolio of 37 stocks with financials as a top sector at 26% of total assets, closely followed by energy (16%), industrials (13%) and consume no-cyclical (12%). With respect to individual holdings, Applied Materials (AMAT), Wells Fargo (WFC) and Morgan Stanley (MS) occupy the top three positions in the basket and collectively make up for 12.72% share (read: Financial ETFs in Focus on Earnings).
GVT is relatively unpopular among the five top performing active funds with AUM of only $4 million and average daily volume of just under 5,000 shares. The ETF has 0.79% in expense ratio and gained 31.52% so far this year.
This ETF seeks to enhance long-term capital appreciation by emphasizing the market sectors and segments that are believed to be the most promising according to the portfolio manager. In other words, depending on the current market conditions, the manager tends to over or underweight certain sectors and segments of the S&P Composite 1500 that are considered as having the highest or least potential for capital appreciation.
This results in a basket of 383 securities with none of the firms accounting for more than 2.15%. Apple (AAPL), Google (GOOG) and Exxon Mobil (XOM) are the top three firms in the fund’s basket. With respect to sectors, healthcare and technology dominate the fund’s returns with one-fourth share each (read: 4 Ways to Play the Bullish Trend in Healthcare with ETFs).
The product has amassed $13.2 million while sees light volume of under 10,000 shares a day. The ETF charges 95 bps in fees per year from investors. HUSE retuned about 28.70% so far this year.
These ETFs can also be summarized in the table below: