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
TheStreet Open House

Unavoidable: Death, Taxes; Avoidable: Actively Managed ETFs

Stocks in this article: BOND

NEW YORK ( TheStreet) -- Generally speaking, I don't like contradictions. They get under my skin.

That's why I get uncomfortable when financial professionals start prattling on about actively managed ETFs. "The best of both worlds" is a commonly cited advantage.

To my way of thinking, it's the worst of both worlds: That is, higher costs and, as far as I can tell, inferior performance.

I noted with some degree of sinister appreciation that the ETF Deathwatch maintained and published by Ron Rowland, president of Capital Cities Asset Management, contains 21 of the 42 actively managed ETFs.

The Deathwatch revolves primarily around trading volume. So the designation speaks mostly to popularity rather than success. Still, with names like Pimco getting into the actively managed ETF space with recent the launch of the Pimco Total Return ETF (BOND), I feel this is something that needs to be nipped in the bud.

Actively managed ETFs are, in most instances, a bad idea. Perhaps there's a case to be made when an actively managed ETF gives you access to some highly specialized expertise and provides a dramatic discount on the fees that would be required to acquire certain securities through individual trades.

That aside, I think I'll stick with my original assertion.

First, they come with higher costs and generally higher portfolio turnover, and that's always bad. I haven't done an exhaustive study but the actively managed ETFs I have looked at seem to deliver underperformance.

The other reason for my aversion to actively managed ETFs is their complexity. When I think about them, I often remember the commercial where the check-out clerk asks the customer if he wants a paper or plastic bag, causing total paralysis.

"So do you want active or passive ETFs...?"

1 of 2

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!
DOW 16,461.32 -153.49 -0.92%
S&P 500 1,927.11 -14.17 -0.73%
NASDAQ 4,382.8470 -36.6310 -0.83%

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