The number of actively-managed exchange traded funds (ETFs) roughly tripled from about 300 to more than 850 since the Securities and Exchange Commission (SEC) relaxed its rules in 2019. Many of these funds blend active strategies with a low-cost ETF structure, providing investors with unique ways to generate alpha.
Let’s examine a few of the most interesting active ETFs launched in May 2022 and why you may want to consider them for your portfolio.
See our Active ETFs Channel to learn more about this investment vehicle and its suitability for your portfolio.
GDIV Focuses on Dividends
Rising interest rates have taken a toll on fixed income securities, prompting investors to look elsewhere for yield. Dividend stocks provide some of the best opportunities to generate income without bonds, but the bear market means that investors must be picky when choosing securities. Fortunately, actively-managed funds can be more discerning.
The Harbor Dividend Growth Leaders ETF (GDIV) maximizes current income by investing at least 80% of its assets in dividend-paying equities. In particular, the fund managers use a bottom-up process to identify companies meeting certain fundamental criteria, while investing primarily in the preferred stock of large-cap companies.
In addition to the fund’s focus on current income, the managers aim to capture equity upside during market advances while providing downside support during market declines. To that end, they employ a Growth-at-a-Reasonable-Price (GARP) investment strategy that looks for under-appreciated growth opportunities at reasonable valuations.
| Name | Ticker | Expense Ratio | Assets |
|---|---|---|---|
| Harbor Dividend Growth Leaders ETF | GDIV | 0.5% | $137.5 Million |
As of June 15, 2022. The assets of Westfield Capital Dividend Growth Fund, which existed since 2013, were acquired by Harbor Capital in May 2022 and merged into the newly established active managed Harbor Dividend Growth Leaders ETF.
BYRE for Real Estate Exposure
Real estate is among the most inflation-resistant sectors of the economy. But, unfortunately, rising mortgage interest rates could hurt residential REITs and a potential recession could hurt occupancy rates for commercial REITs. As a result, investors may want to take a closer look at actively-managed funds focused on more niche corners of the market.
The Principal Real Estate Active Opportunities ETF (BYRE) invests in high-conviction opportunities in non-traditional sectors and other niche corners of the market. For example, the fund managers invest in single-family rentals, wireless towners, self-storage, last-mile delivery, manufactured housing, data centers, and medical offices.
Unlike many ETFs, BYRE is an active non-transparent ETF (ANT) that doesn’t report its daily holdings. As a result, it’s impossible to know whether the price that you pay for a share of the ETF may differ from the market value of its securities. However, the fund tries to mitigate these risks by publishing a “Trading Basket” each day, providing a sampling of its holdings.
| Name | Ticker | Expense Ratio | Assets |
|---|---|---|---|
| Principal Real Estate Active Opportunities ETF | BYRE | 0.65% | $5.1 Million |
As of June 15, 2022
MOOD Provides an All-Around Portfolio
There’s no doubt that today’s market is challenging to navigate. Rising inflation and the risk of a recession have thrown equities into a bear market, while rising interest rates have made many bonds off-limits. At the same time, gold and other precious metals haven’t performed as well as many hoped. The good news is that active funds may be able to help with asset allocation.
The Relative Sentiment ETF (MOOD) tactically invests in equities, bonds and gold based on “relative sentiment” factors. In short, relative sentiment measures the difference in sentiment between institutional and retail investors. By flagging trends earlier, the goal is to identify opportunities to change asset allocations ahead of the larger market.
For example, if U.S. dollar relative sentiment is bearish and real rates are dropping, the fund might allocate non-equity holdings evenly between bond ETFs and gold ETPs. Meanwhile, in bond allocations, the level of retail macro sentiment will determine the percentage of the portfolio dedicated to broad bonds versus inflation-protected bonds.
| Name | Ticker | Expense Ratio | Assets |
|---|---|---|---|
| Relative Sentiment Tactical Allocation ETF | MOOD | 0.69% | $3.1 Million |
As of June 15, 2022
The Bottom Line
Active ETFs provide unique ways to navigate today’s challenging market. Last month, investors gained access to three funds designed to boost dividends, invest in niche real estate, and adjust asset allocations based on retail versus institutional sentiment. While they don’t have a track record yet, investors may want to keep an eye on these funds.
Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.