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Outperforming ETFs Are Few but They're Still Out There


However, that doesn't mean that alpha-seeking ETF strategies are going to languish by the wayside. In fact, this area is expected to grow significantly over the coming years as many established mutual fund brands make the leap to an ETF vehicle.

MFS recently teamed up with State Street (STT) to launch a suite of three actively managed ETFs that follow growth, value, and core strategies. In addition, popular fund company Calamos Investments just released the Calamos Focus Growth ETF (CFGE) that is designed to be a crossover from their popular Calamos Focus Growth Mutual Fund (CBCAX). This stockpicking strategy is designed to select blue-chip equities that the fund manager believes offer the best value opportunity for sustainable growth.

That research and expertise does come at a cost, though. CFGE charges a net expense ratio of 0.90%, while the SPDR MFS ETFs have expense ratios listed at 0.60%. That's a fair sight larger than the 0.05% expense ratio of the Vanguard S&P 500 ETF (VOO), which is one of the primary benchmarks for CFGE.

Often these active ETFs will employ a smaller selection methodology to hone in on the stocks that they believe will provide the best risk-adjusted returns to outperform their benchmark. Investors will have to decide for themselves whether the added fees and proprietary portfolio mix will be enough of an enticement to choose an active ETF over a commensurate passive benchmark.

Whatever choice you make, ensure that you are carefully weighing the pros and cons for each investment opportunity as it relates to your risk tolerance, time horizon and objectives.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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