Active ETF Education Hub

There are several, but you’ll probably hear most often about the following:

Tax efficiency: The ETF vehicle has a natural mechanism that can enhance the tax efficiency of a portfolio. Securities can be redeemed in-kind (i.e. securities are traded for other securities), which allows portfolio managers to remove securities with gains from the portfolio. This does not remove the gains from the portfolio, but instead isolates the gains to investors when they buy and sell at market price.

Liquidity: ETFs can be traded throughout the day when the exchange is open, while mutual funds can be bought or sold only at the end of the day once net asset value (NAV) has been determined.

Lower costs: Generally, the fees associated with ETFs are lower than the fees for mutual funds because ETFs typically have no distribution (e.g. 12b-1) fees and have lower operating fees.

Transparency: Although not all ETFs are transparent, Macquarie ETFs in the US are, and they provide investors with daily disclosure of portfolio holdings.

No transaction fee: Many ETFs can be accessed through platforms with no commission fees.

Active ETFs are actively managed by an investment manager – typically with the aim of outperforming a market benchmark or achieving a specific investment objective. Active ETFs give investors access to experienced investment management specialists, allowing investors to build portfolios and invest in ways that may be suitable for their individual investment objectives and risk tolerances.

Active ETFs, like all ETFs, are open-end funds, which means that the ETF issuer can create or redeem shares according to investor demand, and investors are generally able to buy and sell these shares on the exchange during each trading day.

A passive ETF, also known as an index ETF, typically aims to replicate the performance of a specific index. It may be designed to track a standard index, such as the S&P 500^® Index or a custom benchmark tailored to a specific investment theme. The value of a passive ETF typically goes up or down in line with the index it tracks, and, in general, the ETF does not aim to outperform that index.

An active ETF, in contrast, is based on a particular active investment strategy and its underlying investments are chosen by the investment manager in accordance with the strategy. The investment strategy may seek to outperform an index or market sector, or to achieve a certain investment return or risk objective. The investment manager may employ various trading and portfolio management strategies to try to meet the ETF’s investment objective.

Note: The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value, and is often used to represent performance of the US stock market.

The price of an ETF is influenced by market forces. If the market is volatile, the ETF price may fluctuate accordingly. Markets tend to be more volatile near their open and close, and this is when spreads generally widen. Prices at the beginning of a trading day are influenced by breaking and overnight news and then tend to normalize. 

Based on these trends, the general view is to avoid buying or selling ETFs within the first 30 minutes of the trading day or during the closing auction at the end of the trading day. In early trading there may be a lower volume of trading activity, in conjunction with economic data news and changes in market sentiment, which can lead to higher market volatility and result in the ETF price not aligning closely with its NAV. The same may be said about trading in the closing auction, when there is a heightened risk of trading an ETF at a price that is at a greater discount or premium to the underlying value of its assets than at other times of the day.

ETFs will typically charge a management fee, and the fees charged by the ETF will be set out in the ETF’s prospectus.

The fees charged by an ETF are set by the ETF issuer and will be different for each ETF, depending on the strategy. The fees are commonly calculated daily and deducted from the assets of the ETF by the issuer and reflected in the NAV per unit share price of the ETF.