While actively managed ETFs are less popular than passive ETFs, some are worth considering for your investment portfolio.
However, let me make something clear:passive investing continues to capture market share from active management. According to data from ISS Market Intelligence, active management’s share of the U.S. market in 2022 fell to 53%, down from 44% a year earlier.
“[I]nvestors poured $505.8bn into U.S. passive ETFs last year [2022] and $87.8bn into active ETFs, according to Morningstar’s database. Active ETFs in the U.S. had $343.7bn in assets and passive ETFs had $6.2bn as of the end of December,” the Financial Times reported.
For example, according to VettaFi data, the largest actively managed ETF is the JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI), with $28.7 billion in total assets. By comparison, the largest passively managed ETF– and the largest U.S.-listed ETF in general — is the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), with $408.3 billion in assets.
Warren Buffett feels the best move by regular investors is to buy a low-cost S&P 500 mutual fund or ETF. It’s hard to argue with the Oracle of Omaha.
However, for those who must defy Buffett’s logic, here are three actively managed ETFs for your consideration.
JPMorgan Equity Premium Income ETF (JEPI)
There’s a little something for everyone with these three selections. My first pick, the JPMorgan Equity Premium Income ETF, was mentioned in the introduction.
JEPI is run by portfolio managers Hamilton Reiner and Raffaele Zingone. The two men have nearly 80 years of experience in the industry, much of it with JP Morgan.
Its website states that the fund aims to deliver monthly distributable income while providing lower-volatility equity exposure.
Here’s what the summary prospectus has to say about the portfolio managers’ strategy:
“The Fund seeks to achieve this objective by (1) creating an actively managed portfolio of equity securities comprised significantly of those included in the Fund’s primary benchmark, the Standard & Poor’s 500 Total Return Index (S&P 500 Index) and (2) through equity-linked notes (ELNs), selling call options with exposure to the S&P 500 Index.”
It obtains monthly income from selling out-of-the-money S&P 500 call options and low-volatility equity exposure by owning the S&P 500 stocks with high risk-adjusted returns.
Launched in May 2020, a $10,000 investment was worth $14,645 as of June 30. Although it turns the entire portfolio approximately twice annually, it charges a reasonable 0.35% for this active management. No wonder Morningstar gives it a four-star rating.
iShares Ultra Short-Term Bond ETF (ICSH)
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Since fixed-income securities are back in vogue, I couldn’t resist the iShares Ultra Short-Term Bond ETF (BATS:ICSH). As its name suggests, the ETF invests in short-term U.S. dollar-denominated bonds. These are investment-grade fixed and floating-rate securities.
The fund aims to generate income for shareholders while ensuring capital preservation. BlackRock’s cash management team actively manages it. It charges investors 0.08% or $8 per $10,000 invested.
ICSH has 215 holdings. The weighted average maturity of these holdings is 0.62 years, while the average yield to maturity is 5.74%. The 12-month trailing yield is 3.81%.
As for the size of the fund, it has $6.1 billion in net assets, a large sum gathered over a little less than a decade since its launch in December 2013. Although actively managed, its benchmark for comparative performance is the ICE BofA US 6-Month Treasury Bill Index.
Short-term in nature, 28% of its holdings mature between one and seven days — just 17% maturing in 360 days or more. Approximately 74% of the holdings have a credit rating of A or AA, while AAA and BBB account for 8% and 18%, respectively.
If you’re into income, this is worthy of your consideration.
ARK Innovation ETF (ARKK)
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And now for the risk portion of the selections.
If you are unfamiliar with portfolio manager Cathie Wood, you may have lived under a rock for the last few years. Wood runs ARK Investment Management, the company behind its star fund, the ARK Innovation ETF (NYSEARCA:ARKK).
Wood’s biggest claim to fame is her bold predictions for Tesla’s (NASDAQ:TSLA) share price. Most recently, in April, she predicted that TSLA would go to $2,000 by 2027. It currently trades for $219.
At the height of the fund’s success in Feb 2021, ARKK traded near $160. The innovation and industry disruptors owned by ARKK were in massive demand. She could do no wrong. Alas, all good things must come to an end. It fell to $31 by the end of 2022. Up 32% year-to-date, investors buying ARKK are betting she can revisit the halcyon days from two years ago.
We will see about that.
I know that I have recommended at least six of the fund’s top 10 holdings in the past couple of years. There is no reason why ARKK can’t return to its former glory.
However, it will take a while, so patience is key.
On the date of publication, Will Ashworth did not hold (either directly or indirectly) any posit. in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
