Originally published at: Unlocking the power of active ETFs – InvestEngine Insights
The market for active exchange-traded funds (ETFs) has grown significantly in recent years. Many investors now want the benefits of active management in the simple, low-cost ETF format. In this article, we explain why active ETFs are on the rise and how Fidelity helps investors target specific markets and outcomes.
The rise of active ETFs
ETFs transformed investing when they launched in the early 1990s. Initially, they were used to track broad stock market indices. They quickly became popular because they were:
- Easy to trade
- Low in cost
- Transparent – you can see exactly what’s inside
As the ETF market evolved, newer approaches, including factor-based investing blurred the lines between active and passive features.
Until a few years ago, most ETFs were designed to track the market index. But now, active ETFs aim to beat the market, or deliver specific outcomes. In just five years, active ETFs have grown from less than $200 million to over $1 trillion in assets worldwide.
We expect this market to continue to grow in the coming years, providing investors with even more innovative solutions to build their asset allocation strategies.
Why consider active ETFs?
One of the main reasons why ETFs are so popular is due to their low cost. But based on this recent survey conducted in partnership with Coalition Greenwich, a global provider of benchmarking, analytics and insights to the financial services industry, we found that investors have six primary reasons for looking at active ETFs as part of their portfolios.
While cost is key, many investors are also looking for the chance to earn higher returns. That’s where active strategies stand out.
Higher returns can be achieved based on the strength of the research that goes into creating active ETFs. A strong research process helps managers pick the right investments and avoid poor ones. They can help investors:
- target certain sectors or regions
- manage risk more actively
- try to beat the market over time
Fidelity’s approach to active ETFs
Not all active ETFs are created equal. Different active ETF providers will use various research processes – including how the portfolio is built, the risk management frameworks used, the skill of the people managing it and of course, how their strategy fares against the markets.
Fidelity has decades of experience in active investing. Its global team of analysts are located in all key markets, and conduct due diligence on companies – including their suppliers, customers, and rivals.
Fidelity uses this research, plus its own tech tools, to design active ETFs in both shares and bonds. The goal is to build funds that beat the market and help investors reach their financial goals.
Important information
Please refer to the Prospectus and KIID of the fund before making any final investment decisions. The investment which is promoted concerns the acquisition of units or shares in a fund and not in a given underlying asset owned by the fund. Complete information on risks can be found in the Prospectus.
- Marketing communication.
- The value of investments and the income from them can go down as well as up so you may get back less than you invest.
- Exchange-traded funds may invest in overseas markets and so the value of investments can be affected by changes in currency exchange rates.
- There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall.
- Sub-investment grade bonds are considered riskier bonds. They have an increased risk of default which could affect both income and the capital value of the Fund investing in them.
- Performance data is based on the net asset value (NAV) of the ETF which may not be the same as the market price of the ETF. Individual shareholders may realize returns that are different to the NAV performance.
- Exchange-traded funds are subject to charges and expenses. Charges and expenses reduce the potential growth of your investment. This means you could get back less than you paid in. The costs may increase or decrease as a result of currency and exchange rate fluctuations.
This information must not be reproduced or circulated without prior permission. This information does not constitute investment advice unless specifically agreed in a formal communication. Fidelity International refers to the group of companies which form the global investment management organization that provides information on products and services in designated jurisdictions outside of North America. Fidelity, Fidelity International, the Fidelity International logo and F symbol are registered trademarks of FIL Limited.
This communication is not directed at, and must not be acted upon by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorized for distribution or where no such authorization is required.
UK: The Key Investor Information Document (KIID) is available in English and can be obtained from our website at www.fidelityinternational.com. The Prospectus may also be obtained from Fidelity. Issued by FIL Pensions Management. Authorized and regulated by the Financial Conduct Authority
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In paid partnership with Fidelity Investments.
Capital at risk. The value of your portfolio with InvestEngine can go down as well as up and you may get back less than you invest. ETF costs also apply.
This communication is provided for general information only and should not be construed as advice. If in doubt you may wish to consult a professional adviser for guidance.
Tax treatment depends on personal circumstances and is subject to change, and past performance is not a reliable indicator of future returns.