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Active ETF's?
LHW99
Posts: 5,457 Forumite
I have encountered some articles online recently about Active ETFs (eg https://www.hl.co.uk/news/active-etfs-surpass-passive-for-the-first-time-what-are-they-and-whats-driving-this-shift ).
What are the advantages of these to the ordinary investor?
They appear to be more expensive than passive ETFs, although they trade in real time unlike OIECs. AFAICS they appear to take (effectively) an index and then put a manager in to tweak the investments in the hope of doing better than the passive or maybe eliminating the tracking error.
In my undoubtedly dodgy understanding I would prefer to use an IT if I want an actively managed, trades in real time fund. I can't really see the advantage of the ETF structure.
Does anyone here use them yet, or would consider doing so in due course? If so, what gap in your portfolio do you regard them as likely to fill?
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Comments
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It has been noted before that the rise in ETFs in the US is driven by their weird taxation, which favours them. The article notes that active ETFs are very much in the minority elsewhere. I suppose the lack of stamp duty would be attractive for those wishing to trade frequently.Like you, I'd tend to prefer ITs, but would be open to considering an active ETF.1
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The strategies are just as varied as for other funds as far as I know - no reason for them to take an index as a starting point, but they are usually benchmarked against an index.LHW99 said:They appear to be more expensive than passive ETFs, although they trade in real time unlike OIECs. AFAICS they appear to take (effectively) an index and then put a manager in to tweak the investments in the hope of doing better than the passive or maybe eliminating the tracking error.0 -
1. When Jack Bogle started Vanguard Passive ETF's
The active managers first laughed at him, calling it "Bogle's Foley"
Then when Vanguard started to take customers away from them, they called it "Unamerican"
Now they have decided to join him but "still charge higher fees" naturally.
2. Independent academic research shows that after fees & charges are deducted most active managers can not even match a simple passive Major World Index.
Well I think long term that is still going to be the case.
3. I do not believe in so called "Star Managers". I very much doubt that their luck (or skill) will l continue for say the next 20 years. With their higher charges I cannot see them consistently match, let alone beat any
Major World Index (which remember, does not have any fees/charges to contend with).
4. If there are some persons that can consistently beat the markets then
(a) It will take a long time before they can be identified.
(b) The average investor will not have access to them.
(c) Their investors will be paying exceptional high fees and charges for access to them.
(d) May be only high net worth individual's will be invited. "Snob Appeal" springs to mind.
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Thanks all.I think this tends to confirm my view that even if these become easily available in the UK (M&G are supposed to be launching some I believe) they are not likely to find a place among my investments.I just can't see what role they would fulfil that can't be done as well (or better) by existing index tracker ETFs, IT's and OIECs (trackers / active).I can just about see that taxation differences in the US could make a difference for residents there, but unless stamp duty on shares is abolished over here (which would anyway benefit ITs / tracker ETFs) I'm not sure these would take off in the UK1
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I'm struggling with active ETFs and finding a compelling use for them. I appreciate the instant trading but for long term holdings that's pretty irrelevantPresumably no equalisation for distributing securities unlike OEICs but probably replaced with ERI and all the fun that that entails if holding unwrapped. There would be a spread but then again there is swing pricing. No FSCS protection for what it's worth. Pretty unsuitable for illiquid assets unlike ITsI am guessing that there would be no barrier to multi-asset portfolios, a Lifestrategy ETF? But where's the jam?I wondered if there would be a big cost difference. I see that Terry Smith has launched an ETF of his eponymous equity fund in the US on Monday. A close copy of his OEIC but the fee is 1.00% so no advantage thereI remain unconvinced for now2
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I wondered if there would be a big cost difference. I see that Terry Smith has launched an ETF of his eponymous equity fund in the US on Monday. A close copy of his OEIC but the fee is 1.00% so no advantage there
I haven't managed to find details of likely UK fees for Active ETFs, except that they will be more than a tracker!
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Plus ça change0
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ETFs listed on the LSE are not UK domiciled and therefore not subject to stamp duty now. If stamp duty were to be abolished, that would have no difference for ETFs, but reduce the initial cost of ITs (those that aren't Jersey domiciled).LHW99 said:I just can't see what role they would fulfil that can't be done as well (or better) by existing index tracker ETFs, IT's and OIECs (trackers / active).I can just about see that taxation differences in the US could make a difference for residents there, but unless stamp duty on shares is abolished over here (which would anyway benefit ITs / tracker ETFs) I'm not sure these would take off in the UK1
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