One major difference between exchange-traded funds (ETFs) and mutual funds is that ETFs tend to be passively managed. This means they follow the components of a specific industry group, sector, index, etc. Compared to mutual funds that are actively managed, ETFs cost a lot less. Yet sometimes in order to gain an edge on the market, active management is a must even if the costs are a bit higher. Fortunately, the ETF industry understands and created actively managed ETFs.
Such actively managed ETFs are not merely re-indexed according to a formula on a quarterly or annual basis, but actively trade and sell the relevant underlying securities on a daily basis. Three of the firms currently featuring actively managed funds are AdvisorShares, Columbia Management and PIMCO. AdvisorShares has almost 30 ETFs in its portfolio; Columbia has five, while nine of PIMCO’s 21 ETFs are actively managed.
One of the asset classes used by all three firms in their actively managed ETF efforts is, interestingly enough, bonds. Bonds are typically considered fixed-income securities. But when bundled together and actively traded via an ETF, they are subject to some of the same trading pressures and changing valuation as stocks.
AdvisorShares Madrona Global Bond ETF (FWDB) uses investments in various exchange-traded products to provide exposure to at least 12 global bond classes. Year to date, FWDB is up 4.18%, and the fund features a 3.16% yield.
PIMCO’s Build America Bond ETF (BABZ) invests in municipal debt issued through the Build America Bond program. That program was designed to reduce borrowing costs for U.S. states and municipalities. The fund is up 7.40% in 2014, while rewarding investors with a 3.87% yield.
The Columbia Intermediate Municipal Bond ETF (GMMB) invests in a variety of tax-free bonds, typically due to mature within 10 years. The fund is ahead 2.22% so far this year, and it has a 2.77% yield.
You may want to consider an actively managed fund, if you want a more aggressive investment strategy. These three ETF providers give you the active investment that made mutual funds so popular, while maintaining the transparency and ease of trading of an ETF.
If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.
In case you missed them, I encourage you to read my articles from previous weeks about ETF providers Market Vectors, Global X, Deutsche Bank, ALPS, Direxion, Fidelity, Charles Schwab, Guggenheim, PowerShares, WisdomTree, First Trust, ProShares, Vanguard, iShares and State Street. I also invite you to share your thoughts below.