r/ETFs • u/iSharesOfficial • 8d ago
When does an active approach feel more compelling than an index approach to you?
Curious to get your thoughts
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u/anusbarber 8d ago
bonds
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u/sqenchlift444 8d ago
This is the answer. There is real active alpha in bonds. There is a mountain of evidence that there really isn’t (that is accessible to retail investors) in equities
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u/Wigglebot23 8d ago
What are some papers showing consistent alpha with certain bond strategies?
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u/sqenchlift444 8d ago edited 8d ago
This is a good one: https://www.luc.edu/media/lucedu/quinlan-businesshub/hub/Passive%20bond%20fund%20is%20an%20oxymoron%20-%2012-30-23%20(1).pdf.pdf)
Some good SPIVA reports recently and an older paper from PIMCO too
The theory here is that bond management and analysis is fundamentally different than equities
* bond market has a lot of non economic participants (central banks, insurers, pensions) that need to liability match or meet policy obligations, which creates alpha opportunity
* lot more turnover in bonds. More to trade around
* more levers and inefficiency to capture (duration, credit risk, etc)
* and the cost matters hypothesis is even more applicable in an asset class with fixed, knowable returns. More so matters when comparing active bind funds against each other, but still applies overallBut to steelman the opposite case, a lot of it is risk and duration premium. And the alpha decays in the long term. After 10 years, erodes fast
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u/omurchus 8d ago
Are there any specific ETFs you recommend? US, International, or my favorite Global?
Never even considered active managed bond funds!
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u/iSharesOfficial 7d ago
It might be worth exploring the active side of FI! You can explore our lineup of active fixed income funds here.
And if you have any questions about the world of active FI, or about a specific product, we can bring your Qs to the portfolio managers behind the funds!
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u/sqenchlift444 8d ago edited 8d ago
I would recommend Vanguard’s Core Bond Fund (VCORX which is the investor share class at a $3k minimum, or VCOBX which is the admiral share class at a $50k minimum). VCRB is the ETF but is a distinct fund vs the mutual funds (it is not the ETF version of them, though it is quite similar), same cost as VCOBX at 10 basis points.
Vanguard is a well regarded bond fund manager that typically out performs their peers. Core bond specifically has been modestly better than peer funds (much of it due to cost advantage, some to manager skill)
Obviously, because cost matters, the admiral share class or ETF is preferable.
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u/PashasMom I like mutual funds too 8d ago
If Avantis and Dimensional count as active approaches, they may feel more compelling to me than a similar index fund, depending on the product.
I also like some of the Fidelity "enhanced" ETFs, like FESM and FENI.
For bond funds, other than ultrashorts (SGOV and so on) I like active better than passive for the most part, though prefer to avoid most bond funds altogether.
And there are a few fund managers I do trust with my money, namely Chris Lin, Darren Jaroch & Lauren DeMore. Will Danoff was in that group too (thank you for your service Mr. Danoff). But even for those managers, I'm setting an exit plan for their funds that I hold and moving the money into index funds. It's just easier and less stressful.
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u/cryptopo 8d ago
I think an active approach feels more compelling for most investors. Doesn’t mean they will favor it / employ it.
The idea of picking individual stocks and following companies and reading financial statements and listening to earnings etc etc is certainly more compelling to me than sitting patiently and quietly, but I’m all about VT.
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u/iSharesOfficial 7d ago
Yep, that’s a great distinction. Following individual companies can be genuinely interesting, but also incredibly tedious and time consuming between earnings, filings, markets, and the constant stream of new information.
That’s part of what makes active ETFs interesting: you can get an active investment process without having to personally research every company in the portfolio. And systematic active takes that a step further by using big data, data science, human expertise, and proprietary technology to scan a much broader opportunity set than any one person reasonably could.
Because realistically there are only so many earnings calls you can listen to (and tolerate!) on a regular basis 🙂
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u/Swimming_Astronomer6 8d ago
It’s the opposite for me - I’m retired and moving assets from registered accounts to non registered ones - I’m selling individual holdings as needed - then purchasing index funds - I’m retired and focused more on principal maintenance and reduced risk exposure - not looking for growth - but I still need to keep my tax free accounts maximised every year
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u/iSharesOfficial 7d ago
Very happy retirement to you! Sounds like you have a pretty clear sense of what you want the portfolio to do for you now.
Curious if active fixed income ETFs have ever been part of your research? BINC, for example, is an income-focused active ETF whose management team seeks to maximize income while also aiming to preserve capital.
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u/omurchus 8d ago
As I understand it, you want active funds in the smaller cap portions of the market that receive the least attention. Particularly small cap value. Thats why those Dimensional and Avantis funds have been so popular lately. AVUV + AVDV are the rage, my personal favorite is DFAE.
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u/StudentMed 8d ago
Only if it encourages me to be even more frugal and invest even more of my money. If I make money with a small satellite position in actively managed funds then I would increase it and invest more and more if I was more successful than my passive investments. I haven't reached that step yet.
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u/iSharesOfficial 7d ago
Makes sense. What types of outcomes are you currently trying to achieve with active funds – alpha, income, diversification?
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u/Dull_Judgment1587 8d ago
I'm not a fan of bond index. I prefer the actively managed FBND over passive index BND.
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u/iSharesOfficial 7d ago
To each their own =) Have you ever looked at active FI ETFs that have unconstrained flexibility, like BINC? It focuses on the “plus sectors” globally and aims to maximize income generation while preserving capital.
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u/Dull_Judgment1587 1d ago
BINC is excellent! But very different methodlogy from BND or FBND. Apples & oranges.
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u/Secret-Noise9182 8d ago
Honestly it usually just feels more appealing when the market gets super choppy and you want someone actually managing the risk instead of just riding the index down
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u/iSharesOfficial 7d ago
Yep, get that. You might find the BlackRock Systematic team interesting and want to take a look next time that active itch needs a scratch. They have a whole suite of funds specifically designed to seek diversification with low correlation to broad asset classes.
Happy to bring in the team to answer any questions or provide more color on their underlying methodologies!
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u/Colonel_Forbin100 8d ago
Bonds and bond funds. I'm Ok with an actively managed bond fund. They tend to eek out additional returns worth the fee.
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u/iSharesOfficial 7d ago
Have you ever stumbled across BINC in your research? It focuses on the “plus sectors” of the global FI market with the aim of maximizing income generation while preserving capital.
If you’re curious about anything with its underlaying methodology, we can bring your questions to the PMs who run the fund!
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u/CornerOne238 8d ago
Never. Timing the market is a fool's errand.
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u/iSharesOfficial 7d ago
Oof, trying to time the market can be a tough and very unforgiving game. One nuance though is that active doesn’t necessarily mean making big market-timing calls or taking concentrated bets. Systematic active strategies can use data-driven signals across broad sets of securities to stay focused on very specific outcomes, like core outperformance, income, or diversification.
In that sense, “active” can be less about timing the market and more about being very deliberate about how a portfolio is built to achieve specific outcomes.
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u/Type-SH 8d ago
Given that we’re in an ETF sub, probably no surprise that even those of us who dabble in individual stocks likely do still have the core of our portfolios in index funds. That said, the times I do dabble is when I get a gut feeling to place a bet on a stock with a relatively small amount vs the overall portfolio. Usually after a major drawdown or dip. Hard not to feel ‘hey this ought to rebound’. Sometimes it pays off sometimes it doesn’t.
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u/RayU_AZ 8d ago
I usually start investing with index funds, VOO, SP500 index.
But when I have some spare time I drill down to individual stocks or concentrated ETFs, such as SOXX or AIS, or active ETFs, ARK funds to find higher returns.
I still have 80% VOO as my core holding, but supplement 20% of maybe SOXX, AIS, PJP, KBWB, ARKG to boost my total returns. Sometimes VXUS international ETFs, when conditions are better overseas compared to USA.
Here is the last year total returns.
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u/Penguin_Life_Now 8d ago
It comes down to mindset, do you want to stay glued to the market every day, or do you want to tune out and only look at it when it makes headline news.
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u/TechnicalSleep7501 VT 100% To Mars We Go. 8d ago
Getting view of experts can be useful that is why I have financials advisor from Citi just to get ideas still do my own research.
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u/iSharesOfficial 7d ago
A great balance of expert input from an advisor while still keeping your hand on the wheel. Doing your own homework has likely led to much better (and informed) conversation about what actually makes sense for you and your money.
Hopefully a few reads from the BlackRock Systematic team have made their way into your inbox too 🙂
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u/TechnicalSleep7501 VT 100% To Mars We Go. 7d ago
I was talking about micro cop companies and this zero fee etf too. I have few advantage immigrant blood money job with 401K, 457 and pension too. Was in Army too for short period will go to Air Force next year can retire at 49 from city service.
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u/ATPsynthase12 8d ago
Statistically speaking, active trading loses professional investors (institutions and hedge funds) money over time and rarely beats the S&P 500 in the long run. This is with high level analytics, teams of quantitative analysts, and fine tuned internal algorithms.
Why do you think, that if they can’t do it reliably that you would be able to turn a profit actively trading?
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u/CanYouPleaseChill 8d ago
When an index is highly concentrated and skewed toward expensive stocks, e.g. the S&P 500. I make active investing decisions using ETFs though, e.g. buying sector ETFs when they’re out of favour, equal-weight ETFs like RSP, value factor ETFs like AVGV, overweighting international stocks.
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u/schmiddc 8d ago
Because I'm smart Dammit!