Are ETFs the new active management?

Nicholas Cregan

In this report we address the Exchange Traded Fund (ETF) market, with a focus on how these products are increasingly moving away from providing a passive exposure to the broad financial market, and toward “active management”. These products have grown to represent between 5-7% of the total global share market capitalisation, and in 2016 accounted for one half of the trading volume in US stocks. We look at two examples, amongst a list of many possibilities, where investor expectations could be misplaced when investing in the ETF market. Firstly, Low volatility ETFs, that may ultimately prove to be negatively correlated with rising interest rates; and secondly, Leveraged & inverse ETFs, where daily returns and long-term returns can diverge meaningfully from each other. Click below for the full report, in which we also look at the case for passive and active funds management, and how taking a concentrated, yet risk-adverse approach may help investors enhance investment returns.


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Alex Cowie

Thanks for the report Nick, and Welcome to the platform.

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Karyn Winder

Q - the chart showing the divergence between S&P500 and S&P500 ex bottom 20%, is that the bottom 20% based on market cap (eg. S&P400), or the bottom 20% based on annual performance?

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Nicholas Cregan

Hi Karyn, thanks for your question. The chart excludes the bottom 20% of the S&P500 in terms of price performance in each year. I.e., if an investor had avoided the worst performers in each of those years.

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