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Anonymous

22 Dec 2020

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General Investing

Are all ETFs passively managed or are there actively managed ETFs as well?

Are the actively managed ETFs significantly more expensive than passively managed ones?

Discussion (5)

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There are lot activiely managed ETFs- ARK has lot of actively managed ETFs.

Actively managed ETF are expensive than Passively managed ETFs because they change their portfolio mix to beat the market. On the other side ,passively managed ETFs track an index. So the cost of managing the ETF becomes cheaper becuase they primarily use a buy and hold strategy to replicate the index.

This is actually a good question to think about what is active and what is passive. Because many think that ETFs are passive and individual stock picking is active. Acutally thats wrong. Even though the concept of passive investing coined around the idea of beating the market. Passive and active investing definition is not that.

Definition of passive means funds primarily flow in one direction(BUY and HOLD) regardless of the invetment vehicle. In contrast, Active players create liquidity in the market by buying and selling securities on regular basis. Its the strategy that makes ones investing style active or passive.

One can use a passively managed ETF and use in an active strategy (trading with linear leverage or non-linear leverage) . Underlying constituent level its passive, but overall strategy wise its active.

Not only Actively managed ETFs, there are ETFs out there that actively manage other ETFs.

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Most ETFs are passively managed but there are some which are actively managed. Actively managed ETF are usually more expensive in terms of expense ratio. This is because they have to pay a team of experts to research and select companies. A popular actively managed ETF is ARKK. The expense ratio is 0.75%pa which is higher than most passively managed ETF.

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