11Mon·

Active ETFs - really outstanding, but what are the risks?

Hello everyone -

I added the active ETF to my portfolio last year $216361 (+0.6%) last year and am continuing to build up the position.

Who of you has experience with such active ETFs. In my view, these track an index but aim to outperform it by having fund managers develop specific strategies for targeted deviation in order to regularly adjust the fund composition.

One advantage for investors is that active ETFs are cheaper than traditional actively managed funds that are not traded on an exchange.

When I look at this comparatively, active ETFs do surprisingly well and deliver really good annual returns. In addition to Ossian, active ETFs are also available from Fidelity International, Invesco and JP Morgan Assets.

The benchmark with the MSCI $IWDA (+1.42%) is also impressive.

Addition: Thanks for the first comments; therefore also getquin benchmark to $VUSA (+1.3%) ...

What risks do you see with active ETFs compared to passive ones?

27 Comments

RandomDude@randomdude

11Mon

Very interesting! I will take a closer look at this ETF. Two quick questions/hints:
From my point of view, the S&P 500 or an MSCI USA would be the right benchmark. 100% USA should only be compared with 100% USA.
And the description of the ETF at getquin actually sounds very passive. The ETF tracks an index that is apparently rule-based. Do you know more about this?

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FIRE55@FIRE55

11Mon

@randomdude ING describes it quite well under "Strategy":

https://wertpapiere.ing.de/Investieren/Fonds/LU1079841273

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FIRE55@FIRE55

11Mon

@randomdude You will also find information in Handelsblatt 09/2023:

Almost 17 percent return possible: These funds beat indices such as the MSCI World - https://hbapp.handelsblatt.com/cmsid/29399550.html

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RandomDude@randomdude

11Mon

@FIRE55 I'm completely baffled by this. This text does not describe the index strategy at all, but the technical implementation of the ETF using swaps and the resulting risks 🤔

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FIRE55@FIRE55

11Mon

@randomdude then here is another attempt 😎🙌
https://www.justetf.com/de/etf-profile.html?isin=LU1079841273

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View one more answer

Epi@Epi

11Mon

Active strategies have the peculiarity that many sometimes work well and sometimes less well. In the long term and on average, this strategy is unlikely to outperform the passive S&P500 according to TER.
This is a real problem with active strategies: the potential outperformance is eaten up by the higher costs. At the end of the day, active ETFs can certainly be used, but you should not expect a clear advantage over passive ones.

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FIRE55@FIRE55

11Mon

@Epi Thank you for your assessment. The TER for the active ETF discussed here is 0.65%.

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Epi@Epi

11Mon

@FIRE55 Exactly. The TER for the S&P500 ETF is 0.10%. The 0.55%pa difference should be roughly the return advantage of the active strategy.

I believe there are also extensive studies on such correlations.

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FIRE55@FIRE55

11Mon

@Epi if such a study "flies to you" - please send it to me

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ole-4063@ole-4063

11Mon

@FIRE55 There are dozens of studies about this on the internet. So far, only a handful of people have managed to outperform the S&P over the long term. The average person and the average fund manager have never managed to beat the S&P 500 after deducting costs. The chart always looks good, but the costs eat up everything in the long term, which of course is not taken into account in the chart

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FIRE55@FIRE55

11Mon

@ole-4063 This study by Fund Analysis is certainly interesting:

Handelsblatt: Almost 17 percent return possible: These funds beat indices such as the MSCI World - https://hbapp.handelsblatt.com/cmsid/29399550.html

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ole-4063@ole-4063

11Mon

@FIRE55 unfortunately I don't have a Handelsblatt account 😅 but the beginning was exciting, but it has been proven that after deducting the costs and all the bells and whistles, less is left over the long term than if you simply save a simple ETF with 0.1% costs. Some of the studies I have read have looked over 100 years into the past and after 15 to 20 years 100% of the funds, regardless of when you take 1940-1960 or any other period, were beaten by the S&P 500 after 15-20 years at the latest, without exception, the costs are simply too high and the overperformance, if the active ETF really manages to achieve it at all, then this higher performance is always destroyed by excessive costs. Wolf of invest is a very exciting book where Jordan Bedford, a former Wall Street guy, tells how Wall Street wants to make investors believe exactly that so that people invest in something like this so that they can pocket the fees.

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Uwe@SchlaubiSchlumpf

9Mon

@ole-4063 The thing is that there are countless active funds. If a few of them have been more successful after 20 years of overweighting something, then that's all well and good, but nothing special at first. For the last 20 years, all I had to do was bet on Google. I would be more cautious in the next 20 years

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Tino@parlania

11Mon

Over 5 years no real outperformance against S&P500 ... well ...
Stay with the $VUSA

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FIRE55@FIRE55

11Mon

@parlania I've added the getquin benchmark with $VUSA to the post ... btw, not trying to change your mind, but to identify risks to active ETFs. Thank you!

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Epi@Epi

11Mon

“The conflict of interest in the industry isn’t about indexing vs. active management. It’s cost.” – John Bogle

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Stulle 🥪@Stullen-Portfolio

11Mon

I'm very pleased, @FIRE55, that there is actually a second person here who also invests in this ETF. I am really very convinced of its approach and it is a central component of my ETF combination (incidentally, it is also the largest component).

The question of whether it is active or passive has already been asked in your thread here. If it is actually relevant overall: because it invests strictly rule-based and fund managers do not make individual decisions, it is passive for me.

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FIRE55@FIRE55

11Mon

@Stullen-Portfolio Thank you for your comments and your assessment. The reactions show me that this "type" of ETF is not in the mainstream - it convinces me and will be expanded further. Happy Easter!

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Stulle 🥪@Stullen-Portfolio

11Mon

@FIRE55
You're absolutely right. The $216361 is actually miles away from the mainstream here...but that's all combinations of more than 3 ETFs. But never mind...😁✌️

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Stulle 🥪@Stullen-Portfolio

11Mon

@FIRE55
...and: Happy Easter 🐰

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M47@Jiyanask

11Mon

Is the 0.65% TER also taken into account in the benchmark?

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FIRE55@FIRE55

11Mon

@Jiyanask I am not sure, I think that the benchmark from getquin does not take this into account.

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M47@Jiyanask

11Mon

@FIRE55 would reduce performance accordingly if one has 0.65 and the other 0.2

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RandomDude@randomdude

11Mon

@FIRE55 Of course, the real ETF prices are simply compared. All costs and tracking differences are of course included.

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ole-4063@ole-4063

11Mon

@randomdude but the courses are independent of the costs

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RandomDude@randomdude

11Mon

@ole-4063 The prices are what we are interested in. Of course, they also reflect the costs. You do not receive an invoice for the TER, but the ETF provider deducts all costs from the fund assets.

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FIRE55@FIRE55

11Mon

@randomdude I agree with you.

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