Mutual fund conversions and a resurgence among retail investors have made active ETFs more popular than ever. Since 2018, they’ve pulled in at least $25 billion in new assets per year, resulting in a 30%+ organic growth rate. And, as of October 2023, they held $444 billion in assets, which is triple their level just three years ago!
Despite their rapid growth, most active ETFs underperform their passive counterparts, according to the S&P SPIVA Scorecard, which found they underperformed in every reported fund category over the past 15 years. But, of course, that doesn’t mean every active fund underperforms or that maximizing returns is always the goal.
In this article, we’ll look at some new and interesting pockets in the active ETF universe and when you might want to consider them for your portfolio.
Which Are the Fastest Growing Active ETFs?
Dimensional Advisors and JPMorgan have the most popular active ETFs by assets under management, including the JPMorgan Equity Premium ETF (JEPI) and the Dimensional US Core Equity 2 ETF (DFAC). While these funds may be attractive to investors, they have some competition from faster-growing options in the active ETF market.
The Avantis U.S. Small Cap Value ETF (AVUV) has attracted more than $2.2 billion in net inflows since the beginning of the year. With a robust three-year track record of beating its Russell 2000 Index benchmark, the fund offers value-focused exposure to small-cap companies with a very competitive 0.25% expense ratio.
In addition to AVUV, the Avantis Emerging Markets Equity ETF (AVEM) has drawn in more than $1.6 billion since January. While it underperformed its benchmark in 2020, it outperformed in 2021 and looks on track to beat it in 2023. Meanwhile, it’s modest 0.33% expense ratio makes it one of the most affordable emerging market ETF options.
What Are the Fastest Growing Categories?
Active ETF issuers have been steadily expanding into new categories, pushing into territory previously only available in mutual funds. For example, thematic ETFs provide exposure to the hottest subsets of the market – such as artificial intelligence of battery materials – while other funds provide ways to boost income or reduce volatility.
Buffer ETFs Offer a Margin of Safety
Buffer ETFs, also known as defined outcome ETFs, provide equity market exposure while limiting potential losses over a set period. Using options contracts and other derivatives, they cap maximum losses at a predefined threshold, such as 10% or 20%, in exchange for giving up some upside potential – a trade-off that many investors are willing to make.
The funds are appealing to those nearing retirement who wish to realize some capital growth while avoiding sudden downturns that could meaningfully impact their future income. In addition, investors that are concerned about a bear market – but still want equity upside potential – may find the trade-off worthwhile to manage risk.
Actively Managed Buffer ETFs
These funds were selected based on their exposure to deep tech and exponential themes. They are sorted by their year-to-date total return, which ranges from 10% to 20%. They have assets under management between $29M to $2.5B and have expenses between 0.74% and 1.05%. All of them are currently yielding 0%.
| Name | Ticker | Type | Actively Managed? | AUM | YTD Total Ret (%) | Yield | Expense |
|---|---|---|---|---|---|---|---|
| Innovator Growth-100 Power Buffer ETF - January | NJAN | ETF | Yes | $77M | 19.9% | 0% | 0.79% |
| Innovator U.S. Equity Buffer ETF - March | BMAR | ETF | Yes | $393M | 19% | 0% | 0.79% |
| Innovator U.S. Equity Buffer ETF - January | BJAN | ETF | Yes | $147M | 18% | 0% | 0.79% |
| AllianzIM U.S. Large Cap Buffer10 Apr ETF | APRT | ETF | Yes | $29M | 18% | 0% | 0.74% |
| FT CBOE Vest Fund of Buffer ETFs | BUFR | ETF | Yes | $2.5B | 15.7% | 0% | 1.05% |
| FT CBOE Vest Fund of Deep Buffer ETFs | BUFD | ETF | Yes | $608M | 12.6% | 0% | 1.05% |
| Innovator Power Buffer Step-Up Strategy ETF | PSTP | ETF | Yes | $78M | 10.9% | 0% | 0.89% |
Options ETFs Can Help Bolster Income
Many investors associate options with speculation, but they can also help generate income. Using strategies like covered calls or cash-secured puts, options ETFs can provide enhanced payouts to investors from the premiums received from writing option contracts. This income is above and beyond any dividends or capital gains – but may also lower potential gains.
These funds may be appealing to income investors already in retirement. Rather than allocating assets to fixed income (a problem in a rising rate environment), they can leverage options ETFs to generate more income from equities. In addition, investors concerned about a bear market can use these strategies to hedge their bets during a market downturn.
Actively Managed Options ETFs
These funds were selected based on their exposure to deep tech and exponential themes. They are sorted by their year-to-date total return, which ranges from 2% to 31%. They have assets under management between $500M to $30B and have expenses between 0.35% and 0.79%. They are currently yielding between 0.6% and 10.2%.
| Name | Ticker | Type | Actively Managed? | AUM | YTD Total Ret (%) | Yield | Expense |
|---|---|---|---|---|---|---|---|
| JPMorgan Nasdaq Equity Premium Income ETF | JEPQ | ETF | Yes | $5.58B | 31% | 10.2% | 0.35% |
| Aptus Collared Investment Opportunity ETF | ACIO | ETF | Yes | $538M | 12.5% | 0.6% | 0.79% |
| JPMorgan Equity Premium Income ETF | JEPI | ETF | Yes | $29.2B | 6.7% | 7.9% | 0.35% |
| Amplify CWP Enhanced Dividend Income ETF | DIVO | ETF | Yes | $2.9B | 2.1% | 4.7% | 0.55% |
What Active ETFs Are Outperforming Passive ETFs?
Active ETFs rarely outperform passive ETFs on an overall basis – but there is one notable exception. Active U.S. real estate ETFs have outperformed their passive counterparts over the 1-year, 5-year, and 10-year timeframes, making it the most successful active ETF category, according to Morningstar’s Active/Passive Barometer.
Unlike investing in public companies, real estate investing requires an eye for the details. The largest categories, such as residential or office space, don’t typically offer the highest returns. Instead, niche subsets of the market, such as self-storage or cell towers, may offer better opportunities – and those opportunities require an active manager to spot.
Actively Managed Real Estate ETFs
These funds were selected based on their exposure to deep tech and exponential themes. They are sorted by their year-to-date total return, which ranges from -2.4% to 3.2%. They have assets under management between $16M to $667M and have expenses between 0.17% and 0.69%. They are currently yielding between 3.2% and 4.2%.
| Name | Ticker | Type | Actively Managed? | AUM | YTD Total Ret (%) | Yield | Expense |
|---|---|---|---|---|---|---|---|
| JPMorgan Realty Income ETF | JPRE | ETF | Yes | $310M | 3.2% | 3.2% | 0.69% |
| ALPS Active REIT ETF | REIT | ETF | Yes | $16.8M | 0.8% | 3.9% | 0.68% |
| Fidelity Real Estate Investment ETF | FPRO | ETF | Yes | $131M | 0.4% | 3.2% | 0.59% |
| Dimensional US Real Estate ETF | DFAR | ETF | Yes | $667M | -0.8% | 4.2% | 0.21% |
| Avantis Real Estate ETF | AVRE | ETF | Yes | $325M | -1.6% | 4.2% | 0.17% |
| Invesco Active US Real Estate ETF | PSR | ETF | Yes | $90.1M | -2.4% | 3.3% | 0.35% |
The Bottom Line
Passive ETFs may outperform their active counterparts in most scenarios, but that doesn’t mean you should ignore active funds. If you have goals other than maximizing returns, active ETFs can help you optimize for those goals in unique ways. Meanwhile, some small-cap, emerging market, and real estate funds are handily outperforming their benchmarks.