This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

ETFs Get Active

Mutual funds may not have the low management fees, easy-to-use structure and perceived transparency of exchange-traded funds, but they are typically closely monitored by money managers who reallocate their portfolios to give investors the very best returns.

Now ETFs want in on this game, too. ETFs are designed to merely track indices, but new products are appearing that give investors the benefits of active management. Moreover, some industry watchers say that true actively managed ETFs aren't far off in the distance.

"If you look at the more recent crop of ETFs, you'll see funds that are based on indices that are intended to be 'better indices,'" says Tony Baker, managing director of the exchange-traded marketplace at the American Stock Exchange. "They are based on someone's research that indicates that this basket of stocks has been carefully chosen to be better than a standard index."

These new forms come as the traditional marketplace for ETFs becomes more and more crowded with products focusing on very narrow segments.

"There are not many more ways to slice and dice indices . We're in the ninth inning there. But in terms of the next generation of ETFs, we're in the first inning," says Dan Waldron, vice president of ETF product development for First Trust Portfolios.

His company's First Trust Strategic Value Index Fund (FDV) tracks 40 stocks selected from the S&P 500 based on price-to-earnings ratios to create a basket of value stocks. The portfolio is then reconstituted monthly using these criteria, making it very close to an actively managed portfolio.

"Alpha is the buzzword you're going to hear, and in the next generation of ETFs, it's all about generating alpha, or above-market returns," Waldron says. "As needs have evolved, clients are demanding performance above, say, the S&P 500... You are seeing in these ETFs things that fund managers already do, which is screen stocks and look for certain investment attributes."

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs