Active ETFs are playing a growing role in the investing landscape. In the last few years, interest in them has grown as more and more issuers brought products to market, adding to the category’s diversity. Increasingly, active ETF growth has included funds that don’t offer a “true active” investment approach. Some examples are rules-based, systematic investment strategies, and derivatives-based overlay strategies on top of benchmark index exposures. These “non-index-tracking ETFs” have their place but may not be exactly what investors are looking for when seeking “true active” ETFs.
For example, some active ETFs take a set benchmark and systematically over- or underweight securities with certain characteristics in an effort to outperform. Those funds, aiming to broadly recreate indexing benefits with some active discretion, do not build portfolios from the bottom up as “true active” ETFs do.
It’s essential to distinguish between “non-index-tracking ETFs” and “true active” ones. For example, a “true active” approach might involve asset managers using fundamental analysis and other types of research to construct a portfolio from scratch. That can help build a portfolio comprising high-conviction investments that can potentially outperform broad market indexes.
What’s more, given the rigid rules systematic active funds must follow, they may lack the flexibility needed for a fast-moving market. Whether adapting to key macro trends or major policy changes, a “true active” approach can offer more classic active benefits.
Capital Group Canada offers a variety of “true active” ETFs with myriad exposures and themes. Capital Group Global Equity Select ETFTM (Canada), CAPG, for example, offers long-term potential growth of capital, primarily through investments in common stocks. CAPG relies on a distinct investment approach called The Capital SystemTM.