Charles Schwab — the man behind the company — believes 98% of us are meant to invest in index funds, whether through ETFs or mutual funds.
Schwab recently discussed index investing in a 19-page paper put out by the Schwab Center for Financial Research. Interestingly, he finds favor with active management when market conditions are the most volatile and investors seek to gain downside protection.
That’s because actively managed ETFs can buy defensively or go to cash reducing losses while preserving capital — index funds can’t.
Choosing the right active manager is far easier when it comes to mutual funds than ETFs, though. According to Olly Ludwig of ETF Report, there are 85 actively managed ETFs in the U.S. at the moment compared to several thousand mutual funds. Heck, Morningstar keeps track of 179 mutual fund companies, more than double the total number of actively managed ETFs in existence.
But good actively managed ETFs do exist. Here are my three favorites: