There's a fascinating piece in the WSJ on the ascendance of active ETFs (Jon Sindreu, "Investment Industry Loses Active ETFs," 10/8/2024). Not quite sure what to say about it. Key points:
1. Passive is a low margin, commoditize business which is "killing many midsize asset managers that lack the scale of compete."
2. Smart beta was the industry's first attempt to raise its margins by offering passive-like (or "passive-light") ETFs with higher fees. That cascaded in ESG and other niche preferences.
3. Active ETFs "are the latest attempt" to add to margins, and their investors "are paying more to get less performance." In particular, large cap active ETFs trail both large cap funds and passive ETFs in performance. Active mid-caps trail passive mid-caps. None of those calculations take volatility into account.
4. Active ETF launches this year outnumber passive by 3:1.
5. Active ETFs are outperforming in small caps and bonds.
6. The largest active ETF is JPMorgan Equity Premium Income ETF, "which sells covered calls to reduce volatility," an activity that Mr. Sindreu describes as "a sure way to miss out on big gains during rallies while retaining unlimited downside risk."
To which I say, "hmmmm..."
Comments
Also, the public misunderstands these - that the upside is limited, but the downside is full. Moreover, the potential LT-CGs get changed into premium income.
how-avantis-become-one-fastest-growing-fund-companies
Makes me wonder how much ink Sindreu spilled on the topic of concentration in the cap-weighted S&P 500. Are we over that now?
The point I was making was that JEPI & JEPQ don't use any new options techniques. But their AUMs have ballooned just because of JPM's marketing muscle & investors' misconceptions about these late bull market funds.
Most active ETFs just use options overlays, not so for active OEFs.
dI’m not into options. Owned GATEX for short periods in the past and felt it was a more conservative approach than some of the more popular / recent options strategies. But might be wrong.
JEPI's stated benchmark is the sp500 but tries to match it with less volatility. it gets the volatility part right but for probably most of the dollars invested in this thing, its been a flop.
Hopefully people learn their lesson and build a portfolio with these products for the long term but thats not how it seems it goes. people will still pile into good performers and then sell when it doesn't go their way.
see ARKK.
'Twas ever thus.