There’s a lot to be said for long-term investing in low-cost index funds. A lot of research shows it’s incredibly difficult to time the market’s ups and downs or properly identify which companies or which sectors will be in favor.
However, actively managed exchange-traded funds, or ETFs, should not be overlooked entirely. There are times when being tactical can indeed pay off. And furthermore, if the broader investment strategy of an active ETF simply isn’t replicated by an index fund in an effective way, there’s nothing wrong with using the tools that are at your disposal.
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The following seven actively managed ETFs are among the largest out there, each with more than $5 billion in assets under management. They also each represent a distinct way of playing the stock market that may be a bit more tactical and precise than what you may get out of a plain vanilla index ETF.
| Actively managed ETF | YTD return as of May 3 |
| JPMorgan Equity Premium Income ETF (ticker: JEPI) | 3% |
| ARK Innovation ETF (ARKK) | 15% |
| Pimco Enhanced Short Maturity Active ETF (MINT) | 1.9% |
| First Trust Preferred Securities and Income ETF (FPE) | -4.4% |
| Dimensional US Core Equity 2 ETF (DFAC) | 3.7% |
| Dimensional World ex U.S. Core Equity 2 ETF (DFAX) | 7.6% |
| Avantis U.S. Small Cap Value ETF (AVUV) | -4.4% |
Best Active ETF for Income: JPMorgan Equity Premium Income ETF (JEPI)
This massive $25 billion fund is perhaps the largest actively managed ETF on Wall Street, depending on your definition. It seeks to provide consistent and significant income via dividend stocks, along with lower relative volatility. The result is a massive yield of 9.8% right now, built on a selective list of about 110 stocks including confectioner Hershey Co. (HSY), big pharma mainstay AbbVie Inc. (ABBV) and other income-oriented companies, building a customized fund that is much different than your typical index ETF of dividend stocks.
Best Active ETF for Growth: ARK Innovation ETF (ARKK)
Led by manager Cathie Wood, a name that has become synonymous with innovation and growth potential, the ARKK fund is designed to capitalize on most disruptive and high-potential stocks out there right now. Currently, the list of holdings includes EV manufacturer Tesla Inc. (TSLA), streaming video giant Roku Inc. (ROKU) and mobile payments firm Block Inc. (SQ), among others. The fund was seen as a consistent outperformer until the first half of 2021, when it plummeted in value thanks to the return of a “risk off” environment on Wall Street. With a return of growth-oriented trades in 2023, we could see a resurgence for ARKK, too.
[READ: 7 Best ESG Funds to Buy Now.]
Other Active ETFs to Consider:
Pimco Enhanced Short Maturity Active ETF (MINT). Bond funds make up a large chunk of the universe of actively managed ETFs, and MINT is among the largest of these with more than $8 billion in assets. Though the trailing 12-month yield is about 2.8%, the last 30 days of distributions indicate a current yield of about 5.2% thanks to a rising interest rate environment. A shorter duration sometimes means less yield than longer-dated and riskier bonds. But in the current environment, it means MINT can rotate out of lower-yielding securities and into higher-yielding ones promptly.
First Trust Preferred Securities and Income ETF (FPE). Another way to invest for income outside the bond market is via preferred stock. Unlike common stock, this special hybrid asset class offers more stability and a bond-like yield. FPE has a portfolio of around 300 holdings including preferred stock in financial giants like Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC) along with capital intensive companies like energy infrastructure company Energy Transfer LP (ET). Currently this ETF yields about 6.3%.
Dimensional US Core Equity 2 ETF (DFAC). You may not have heard of asset manager Dimensional, but DFAC is a well-established fund with an impressive base of more than $18 billion under management. This active ETF is unique in that it comprises some 2,700 holdings but is actively managed to move in and out of positions based on tax efficiency and tactical opportunities. For instance, despite a massive list of positions, more than 18% of them sit in the top 10 holdings alone at present. It’s an intriguing way to try and balance the need for diversification along with a desire for tactical outperformance based on weighting.
Dimensional World ex U.S. Core Equity 2 ETF (DFAX). A natural cousin to DFAC, this other Dimensional fund is a play on stocks outside the United States — a good way to add diversification or growth potential. The $5 billion actively managed ETF holds almost 10,000 total companies including Swiss consumer king Nestle SA (NSRGY) and French energy giant TotalEnergies SE (TOT). If you want a tactical way to look beyond America’s borders right now, DFAX is a decent option to consider.
Avantis U.S. Small Cap Value ETF (AVUV). Small cap stocks generally require more research and a more tactical approach. And when you’re looking for smaller companies that are value-oriented instead of growth-oriented startups, it’s even more of a challenge. This $5 billion fund holds about 700 companies that are hand-picked from the smallest corners of Wall Street based on value-oriented criteria. It’s top-heavy when it comes to financials, with about 26% of assets in the sector, but otherwise tries to cast a wide net to find the best opportunities that meet this strategy.
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7 Best Actively Managed ETFs originally appeared on usnews.com
Update 05/04/23: This story was previously published at an earlier date and has been updated with new information.
