The landscape of exchange-traded funds (ETFs) predominantly comprises passively managed index funds that meticulously follow renowned benchmarks like the S&P 500 or Russell 2000. Yet, a hidden gem in the realm of investing lies in the realm of actively managed ETFs, designed to outperform the market, generate additional income, or provide access to distinct assets.
When delving into actively managed ETFs, a prudent investor keeps a few critical factors in mind. Firstly, fees wield considerable importance. While index funds boast expense ratios of 0.10% or lower, actively managed ETFs commonly sport fees five times that figure, or even higher. Secondly, the allure of outperforming the market carries the shadow of increased risk – a delicate balancing act akin to navigating a tightrope.
Embark on this odyssey as we delve into three captivating actively managed ETFs, each with its allure and potential to enhance your investment portfolio.
JPMorgan Equity Premium Income ETF: Leading the Charge
Standing tall as the largest actively managed ETF with a staggering $33 billion in assets under management, the JPMorgan Equity Premium ETF (NYSEMKT: JEPI) is a stellar exemplar of a “covered call ETF.”
This fund delves into a portfolio of stocks, predominantly large-cap corporations that resonate with the general populace. Nestled among its top 10 holdings are industry giants such as Meta Platforms (NASDAQ: META), Amazon.com (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), and Intuit (NASDAQ: INTU), sculpting a diverse landscape that closely mirrors an index but not entirely.
The fund’s modus operandi entails selling covered calls, also known as options, on the fund’s positions. This strategy generates income, facilitating an above-average yield for investors. Despite income fluctuations, the current 7.7% annualized yield of this ETF shines bright. Moreover, sporting a reasonable expense ratio of 0.35%, the JPMorgan Equity Premium ETF beckons as a prudent investment choice.
Avantis U.S. Small Cap Value ETF: Unearthing Hidden Value
Exploring the intriguing misalignment between small-cap and large-cap stock valuations in 2024 unveils a fascinating narrative. Small caps shine with their lowest price-to-book valuations relative to large caps in a quarter-century. Moreover, the abyss between value and growth stocks’ valuations presents a compelling opportunity, poised to blossom as interest rates descend.
The Avantis U.S. Small Cap Value ETF (NYSEMKT: AVUV) emerges as a beacon of hope amid this valuation tapestry. An actively managed ETF, it holds a favorable 0.25% expense ratio, a rarity in the actively managed realms. Boasting over $10 billion in assets, this ETF has resonated deeply with discerning investors.
This ETF ventures into a diverse cohort of small-cap stocks characterized by modest valuations and robust profitability. Esteemed entities like Abercrombie & Fitch (NYSE: ANF), KB Home (NYSE: KBH), and Air Lease Corp (NYSE: AL) headline the portfolio, embodying the essence of potential growth.
Ark Innovation ETF: Embracing Technological Frontiers
Stepping into the realm of disruptive innovation, the Ark Innovation ETF (NYSEMKT: ARKK) takes center stage as a tech-focused ETF intricately weaved by Cathie Wood’s Ark Invest. With assets totaling $7.5 billion, it stands proud as Ark’s flagship ETF.
Operating within a dynamic spectrum, this fund perennially holds between 35 and 55 stocks, crafting a concentrated portfolio. The top five holdings, collectively commanding nearly 40% of the ETF’s assets, feature luminaries like Coinbase (NASDAQ: COIN), Tesla (NASDAQ: TSLA), Roku (NASDAQ: ROKU), Block (NYSE: SQ), and UiPath (NYSE: PATH).
While undeniably the most volatile of the trio, the Ark Innovation ETF offers boundless potential rewards, especially with its robust top positions. With an expense ratio of 0.75%, this ETF beckons as a gateway to exponential growth sans the guesswork.
Diverse Investment Horizons
Each of these ETFs exudes a distinct aura, catering to diverse investment goals. JPMorgan Chase ETF allures income-seeking investors, the small-cap value ETF invites long-term growth enthusiasts at an enticing valuation, and Ark Innovation ETF beckons forays into technological marvels.
Embark on this journey wisely, tip-toeing past the allure of actively managed ETFs that promise the moon and stars, understanding that each investment bears its risks and rewards.
