The exchange traded fund (ETF) industry just celebrated its 20 year anniversary, and since its inception has continued to introduce new and creative ETF options. The industry has specialized in passively managed funds that seek to mimic the return of an underlying index, such as the popular S&P 500 or Dow Jones Industrial Average stock market indexes. But more recently, the industry has started to roll out actively-managed ETF alternatives, which seek to charge higher fees than ETFs are known for, but add the opportunity to outperform a respective index by more actively seeking to underweight and overweight certain securities compared to their bogey. Below are some of the more popular actively-managed ETFs currently out there.
PIMCO Total Return ETF
The PIMCO Total Return ETF (ARCA:BOND) is not even a year old but has quickly grown assets to become one of the largest and most popular active ETFs. The fund was first rolled out on Feb. 28, 2012 and already boasts more than $4 billion in assets under management. Expenses are 55 basis points (BPS) (0.55%), which is high compared to passive ETF alternatives, but more reasonable when compared to active bond funds. In fact, this ETF seeks to resemble the Pimco Total Return Institutional bond fund managed by famed bond manager Bill Gross. For these reasons and a strong return run since it was rolled out, this active ETF should top the list for investors looking for bond exposure.
Pimco Enhanced Short Maturity Strategy ETF
The Pimco Enhanced Short Maturity Strategy ETF (ARCA:MINT) has been around since 2009 and currently has approximately $3 billion in total assets. The expense ratio is quite reasonable at 35 BPS but only yields around 1% because the ETF invests in bonds with maturities of a year or less. For these reasons, it is intended for investors who value liquidity and investing in the short-term portion of the yield curve. Adding actively-managed capabilities from Pimco, which is well-respected in the fixed-income space, can help boost yield slightly while the short maturity schedule means investors should be able to pick up yield if and when interest rates start increasing steadily.
WisdomTree Global Corporate Bond
On Jan. 31, the WisdomTree Global Corporate Bond (Nasdaq:GLCB) was rolled out. The active ETF seeks to invest in corporate debt throughout the globe. The expense ratio of 45 BPS is again high compared to passive ETF alternatives but reasonable compared with active mutual funds that pursue a similar strategy. According to WisdomTree, the fund "seeks to provide a high level of total return consisting of both income and capital appreciation through investments in the debt of corporate issuers from countries throughout the world." Assets are low at only around $7 million, but should grow as the ETF was just introduced.
Huntington U.S. Equity Rotation Strategy ETF
The Huntington U.S. Equity Rotation Strategy ETF (ARCA:HUSE) was rolled out by Huntington Bancorp in July 2012. Asset levels are still quite low at below $10 million, but the ETF's appeal is more active management utilizing a strategy of shifting in and out of different sectors within the S&P Composite 1500 index. The ETF has performed well since its inception, but is still building out its track record and overall asset levels. The expense ratio is a bit high at 95 BPS.
First Trust North American Energy Infrastructure Fund
The First Trust North American Energy Infrastructure Fund (ARCA:EMLP) was first introduced in June 2012 and has grown rather quickly to nearly $190 million in total assets. The appeal to investors is its investments in master limited partnerships (MLPs) that are complicated investments but offer higher yields than many bond and stock alternatives. The expense ratio is somewhat lofty at 95 BPS, but the fund is performing strongly as investors pile into higher-yield investments. The ETF's investment mandate is to invest around 80% of its assets in the energy infrastructure sector, such as publicly-traded MLPs.
The Bottom Line
A recent Reuters article estimated that only 37 of nearly 1,300 ETFs are currently actively managed. This represents less than 1% of total domestic ETF assets under management of $1.2 trillion. However, active ETFs are still in their infancy and should continue to increase their offerings over time.
At the time of writing, Ryan C. Fuhrmann did not own any shares in any company mentioned in this article.