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lovable losers? The WSJ on active ETFs

David_Snowball
in Fund Discussions
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

  • yogibearbullyogibearbull
    Credit the success of JEPI & JEPQ to JPM PR. There is much older GATEX that isn't hot.
    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.
  • beebee
    Different take on the successes of some active ETFs:

    how-avantis-become-one-fastest-growing-fund-companies
  • hank
    yogibearbull said:

    Credit the success of JEPI & JEPQ to JPM PR. There is much older GATEX that isn't hot.
    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.

    Typo? GATEX not an etf.

  • WABACWABAC
    TCAF, QLTY, and LCR go through boomlets of attention here from time to time. Sindreu wants to know if your yachts have arrived yet.

    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?


  • WABACWABAC
    edited October 9
    WABAC said:

    TCAF, QLTY, and LCR go through boomlets of attention here from time to time. Sindreu wants to know if your yachts have arrived yet.

    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?

    that lack the scale of compete.
    Did he just noun a verb? I don't think I've seen that yet.
  • yogibearbullyogibearbull
    edited October 9
    GATEX is an OEF with 12/1977 as inception. It has been using options overlays since soon after there were tradable options in 1970s. Its inception well predates the ETFs that have been around only since 1990s. So, GATEX isn't an ETF, but a granddaddy OEF that has been using these options overlays.

    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.
  • hank
    edited October 9
    OK - Thanks Yogi

    d

    I’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.
  • sma3
    JEPI has outperformed GATEX by a wide margin since JEPI inception. I assume this is because GATEX also buys puts, which have not helped during a bull market
  • mskursh
    JEPI was advertised pretty heavy on Morningstar, Bloomberg, CNBC in 2021. and then 2022 happened which sent inflows to the moon on this thing. /investing on reddit had gobs of 20 somethings building JEPI/SCHD heavy portfolios which was interesting.

    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.
  • Observant1
    "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."

    'Twas ever thus.
  • Sven
    One needs to pay attention on the expense ratio of active managed funds. There is a fine balance between accessibility (via brokerages) and cost of owning these active ETFs. Hopefully these active ETFs are equally as tax efficient as the passive ETFs.
  • MarkMark
    @Observant1 +1
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