ETFs with active management are relatively new to the market but there are a handful of outstanding choices for investors and 2015 is looking like a year where these actively-managed funds can be a smart portfolio management tool.
For nearly the first two decades of their history, ETFs only offered passively-managed funds that tracked the major market indices. And just in the past 10 years, actively-managed offerings have been emerging as the popularity of ETFs have grown.
Like their actively managed mutual fund counterparts, ETFs with active management will employ investment strategies and tactics to outperform a benchmark index. However, a few key advantages of ETFs, compared to mutual funds, are low expenses and the ability to trade intra-day, both of which can be even more advantageous for investors in a highly volatile trading environment as the market has recently seen.
Now may be as good of a time as ever to check out the best actively managed ETFs to buy now.
Best Actively Managed ETFs — ProShares Managed Futures Strategy (FUTS)
The saying, “As goes January, so goes the year,” may become a harsh reality in 2015. If so, actively managed ETFs with a hedging objective may be a smart addition to your portfolio, and ProShares Managed Futures Strategy (FUTS) has been a recent performance leader in this category.
FUTS may be considered an enhanced index fund because it incorporates both active and passive features. The hedging strategy comes into play by weighting futures contracts to track an alternative benchmark, the S&P Strategic Futures Index, which according to ProShares, “is a long/short rules-based investable index that seeks to capture the economic benefit derived from both rising and declining trends in futures prices.” Positions can be in commodities futures as well as currency and U.S. Treasury futures contracts.
Although ProShares has been managing alternative ETFs longer than most fund shops, it is important to note that the Managed Futures Strategy fund has only been around for three months and portfolio assets were recently $6.4 million. So you’ll have to watch for price disparities (discounts or premiums), which can be an advantage or disadvantage in high volatility, depending upon which side of the trade you’re on.
With that said, the past three months have been one of the most volatile periods in years and the performance for FUTS during that time has been stellar. It ranks in the top 1% in performance among the managed futures fund category. And so far this year, the price for FUTS is up 1.6% while the S&P 500 Index was down -1.8%.
The expense ratio for FUTS is a low 0.75%.
Best Actively Managed ETFs — First Trust North American Energy Infrastructure (EMLP)
Sticking with the theme of contrarian investing in a year where the alternative, bolder strategies can simultaneously add alpha and diversity to a portfolio, First Trust North American Energy Infrastructure (EMLP), is a great choice among actively managed ETFs.
EMLP is not only one of the biggest actively managed ETFs on the market, it’s also among the most popular in the hot Master Limited Partnership (MLP) market. Like REITs, MLPs are “pass-through” investment vehicles that don’t pay tax at the entity level and are required to pay out most of their current income to investors. But instead of investing in real estate, MLPs invest primarily in energy (oil and gas) assets.
Now that oil is at a multi-year low, investors looking for actively managed ETFs have a compelling energy play in EMLP. And you won’t have to stick your neck out too far in risk to participate in the eventual recovery for oil and energy.
As InvestorPlace contributor David Fabian recently noted in his story, “3 MLP ETFs in the Midst of Volatile Energy,” EMLP may appeal to investors “with more conservative tastes” and ” this actively-managed ETF takes a unique approach by combining both traditional utility stocks and MLPs.”
As a result of solid management, EMLP currently ranks in the top 1% of the turbulent equity energy sector funds for 1-year performance. The expense ratio is reasonable at 0.95%.
Best Actively Managed ETFs — Columbia Large Cap Growth (RPX)
If you are looking past the early-2015 volatility and downside pressure and toward the macro-economic picture of solid U.S. growth in the foreseeable future, actively managed ETFs like Columbia Large Cap Growth (RPX) is a solid choice for you.
The small-cap and mid-cap areas may be risky this late in the market cycle and growth typically outperforms value in this stage. Therefore a good actively-managed large growth ETF can work well.
According to Columbia Management’s summary of RPX, the fund manager “combines fundamental and quantitative analysis with risk management in identifying investment opportunities and constructing the ETF’s portfolio.” The fund invests at least 80% of its net assets in equity securities that the fund management believes has above-average growth prospects.
The top sectors are top late-cycle performers, technology, health care and industrials. Top holdings include Apple Inc (AAPL), Lowe’s Companies Inc (LOW) and Comcast Corporation (CMSCA).
Now that large growth stocks are starting to edge out the S&P 500, Columbia Large Cap Growth is doing the same. RPX edges out the S&P 500 in the 3-month and 1-year price performance and in the 3-year annualized returns.
The expense ratio of 0.82% for RPX is also below the average actively-managed mutual fund.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.
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