10 Active ETFs in 2024

The development of ETFs

The evolution of ETFs (Exchange-Traded Funds) over the years has been quite dynamic. Originally, ETFs were predominantly associated with passive investing, designed to track established indices like the S&P 500 or specific sectors with minimal management and lower fees. This approach appealed to investors seeking market exposure with transparency and low costs.

However, as financial markets evolved and investor preferences diversified, the concept of "smart beta" emerged. Smart beta ETFs aimed to enhance returns by using alternative index construction methodologies, such as weighting factors other than market capitalization or incorporating factors like value, momentum, or volatility. This provided investors with more tailored strategies beyond traditional market-cap weighted indices.

Moving into the 2020s, a period marked by economic shifts and increased market volatility, there has been a notable rise in active ETFs. Active ETFs depart from passive strategies by allowing portfolio managers to actively make investment decisions, aiming to outperform benchmarks rather than simply mirror them. This flexibility and potential for alpha generation have attracted significant investor interest, particularly in uncertain economic environments where active management may capitalize on market inefficiencies or swiftly adjust to changing conditions.

What Are Active ETFs?

Active management represents a relatively recent development within the ETF universe. Unlike passive ETFs that aim to replicate market indices, active ETFs rely on professional managers to select assets with the goal of outperforming benchmarks. This approach contrasts sharply with the passive strategy's goal of mirroring market performance.

Active ETFs are designed to leverage strategic portfolio decisions and frequent trading to achieve superior returns or specific investment objectives. Managers engage in thorough research and analysis to identify opportunities and actively adjust holdings in response to changing economic conditions, market dynamics, or emerging trends.

However, the benefits of active management come with associated costs. Investors typically incur higher expense ratios to compensate managers for their expertise and efforts. Additionally, the potential for more frequent portfolio turnover can lead to increased transaction costs and tax implications compared to passive ETFs.

In essence, while active ETFs offer the potential for enhanced returns through skilled management and dynamic decision-making, investors should carefully weigh the higher costs and potential drawbacks associated with this approach against their investment goals and risk tolerance.

10 Active ETFs in 2024

The first half of 2024 has been particularly noteworthy for active ETFs, with record net inflows exceeding $120 billion. This surge in popularity contrasts sharply with their early years, where annual inflows rarely surpassed $10 billion. The growing acceptance of active ETFs underscores a shift in investor sentiment towards strategies that blend the benefits of ETF structure—like liquidity and transparency—with active management's potential for superior returns.

The landscape of ETF investing has evolved from its passive origins through smart beta innovations to the current prominence of active strategies. The substantial inflows into active ETFs in 2024 reflect a broader trend towards more dynamic and responsive investment approaches in an increasingly complex economic environment.

The most popular ETFs are stock funds, but many ETFs invest in bonds, commodities, currencies, and real estate. Since January 2024, there have even been bitcoin futures ETFs.

ETF trading skills for beginners

Exchange-traded funds (ETFs) are well-suited for novice investors because they offer several advantages. These include low expense ratios, instant diversification, and a wide range of investment options. Unlike certain mutual funds, ETFs often have low minimum investment requirements, making them accessible even to investors without substantial capital. This accessibility allows beginners to start investing without needing significant initial funds.

• ETF Selection
  
  Choose ETFs that align with your investment goals and risk tolerance. Consider factors like management style (passive vs. active), expense ratio, tracking error, and historical performance relative to benchmarks.
  
• Liquidity Considerations
  
  Trade ETFs with adequate liquidity to ensure you can enter and exit positions efficiently without significant price impact. Check average daily trading volume and bid-ask spreads before trading.
  
• Shorting Selling
  
  Short selling involves selling a stock or another asset that the investor has borrowed, with the intention of profiting if the asset's price declines. Conversely, if the asset's price increases, the investor faces potential losses. This strategy is inherently risky due to the possibility of unlimited losses if the asset's price rises significantly instead of falling as anticipated. Short selling requires careful consideration and risk management to navigate successfully.
  
• Trading Strategies
  
  Explore different trading strategies such as trend following, mean reversion, or momentum trading. Adapt strategies based on market conditions and your investment objectives.
  
• Asset Allocation
  
  ETFs are particularly advantageous for beginners looking to implement an asset allocation strategy. With their low investment thresholds, ETFs enable beginners to easily diversify across various asset classes according to their investment time horizon and risk tolerance. This accessibility allows investors to build a well-rounded portfolio that can better withstand market fluctuations and align with their financial objectives.
  
  For new investors, begin by defining your financial goals and assessing your risk tolerance. Next, establish a monthly budget for investing. Finally, select one or more ETFs that align with your objectives and can help you achieve your financial goals effectively. This approach will help you build a diversified portfolio suited to your needs and grow your investments over time.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.