Most exchange traded funds don’t have a lot of hands-on management. What the ETF is when an investor buys in is what it is when (and if) they leave. But some have money managers who take an active interest in the contents of the ETF.
And there’s not many of them. Only three trades over 10,000 shares a day. The largest – Active Bear ETF – is also the worst performing. Active ETFs currently make up less than one percent of the total ETF assets, or 12.9 billion versus the 1.49 trillion ETF market in the US.
Active ETFs are a relatively new phenomenon. The first active ETFs were launched in 2008. ETFs were first traded in the United States in 1993, and at first were strictly passive investments. But money managers started betting that they could outperform the market, by applying a systemized strategy to the ETF.
Some ETFs are opaque about their strategy, fearing that exposing their "secret sauce" would make the ETF a less hot commodity. Others — like theTrimTabs Float Shrink ETF (TTFS) — are very open about how they like to dig into their ETF and reinvest.
While active ETFs are a miniscule portion of the entire ETF market, it looked like an interesting proposition to see how they've done in comparison to their passive counterpart,s and the market in general. The question is, is the extra work involved in tinkering with an active ETF worth it?
By the numbers, the answer is "no." Of the thirty active ETFs trading at a significant volume (over 10,000 shares) only two have experienced a gain over 15 percent year to date. And only one has outperformed the S&P 500 (the S&P 500 is currently up 18.61 percent on the year.)
Here are four significant active ETFs, and a little information oat has made them successful – or not.
Active Bear ETF (HDGE)- The Worst Permoing Active ETF
Active Bear has had a rough year. The ETF is one of the most popular active ETFs, but of the 57 actively traded ETFs, it is the worst performing. Active Bear is strictly a short ETF, and actively seeks companies they believe will fail. On their site, they point out how many stocks are unprofitable investments (39 percent) and generally extol a pessimistic view of the market. The company has holding in internatiional bonds and a stake in shorting Deustche Bank (DB) .
Unfortunatley, the strategy hasn''t paid off this year, as the active ETF is down 17.06 percent year-to-date to hit $15.19 a share.
North American Energy Infrastructure ETF (EMLP)- The Best Performing "Heavy Volume" Active ETF
Unusual among active ETFs North American Energy Infrastructure, this investment has had a significant return year-to-date. The manager of the ETF, First Trust, states that the strategyof the ETF is to "invest at least 80% of its net assets in equity securities of companies headquartered or incorporated in the United States and Canada engaged in the energy infrastructure sector."
And as energy has upticked, so has this ETF which is up 15.68 percent this YTD to hit $23.92 a share.
Total-Return Exchange Traded Fund ($BOND) – The Most Popular
This active ETF deals in the bond market, and according to investment manager PIMCO focuses on high quality bonds. The ETF trades heavily, averaging 662,730 volume.
The ETF is quite large, the largest among all active ETFs, with $4.41 billion in assets. But depite the injection of cash it has experienced, it hasn't fared well. The ETF is down 2.45 percent year-to-date to hit $105.67 on the year.
TrimTabs Float Shrink ETF (TTFS)- The Best Performing Active ETF
TrimTrabs Float Shrink is disctinct among the 57 actively traded ETFs in two key areas: one; for active ETFs trading over 10,000 shares, it's the only one to outperform the S&P 500 this year. And two, among all 57, it's had the best year.
Thier investment strategy is simple: the ETF focuses on large cap stocks that engage in share buybacks. In an interview with Bloomberg on May 2013 ,Charles Biderman, CEO of TrimTabs Investment Resreach (the ETF's manager) credits the ETF’s success to their strategy of focusing on companies that both have free cash flow and engage in share buybacks – hence the “floating” part of the ETF's moniker. Biderman prefers these stocks to ones that give dividends.
TrimTabs Float Shrink is up 28.65 percent on the year to hit $43.40 a share.