Actively Managed ETFs vs Managed Funds: Critical Differences

The universe of managed funds is huge and deciding where to place your assets can be as tricky as choosing single shares.

In the broadest sense, funds can be divided into two groups: active and passive. Traditionally, Exchange-Traded Funds (ETFs) have been passive investments, tracking an index, or an industry, or a commodity. 
The first Active ETF was introduced into Australia in 2015, giving investors access to actively managed funds via a simple trade on the Australian Stock Exchange. Unlike the original passive ETFs however, the fund is managed by a portfolio manager, who ‘actively’ manages the basket of underlying stocks with the aim of outperforming the market.

This begs the question - what are the similarities and what are the main differences between actively managed ETFs and “traditional” managed products?

Broadly speaking, investors in active ETFs and managed funds are making the same decision: allowing a fund manager to decide where and when to invest. Active ETFs will aim to outperform the benchmark index, and managers choose sectors and weightings depending on their own strategy. Like managed funds, active ETFs give investors the opportunity to beat the market by tapping on the knowledge and experience of financial professionals.

They also offer the opportunity to benefit from the inefficiencies of the market. Share prices do not always behave logically. A sudden drop in Apple shares, for example, might spook the market and affect shares of other technology companies that aren’t related to Apple. A company might announce positive earnings, but the share falls because a short-term negative news story on that firm unsettles the market. Active managers seeks to spot these irregularities and can potentially profit from them.

So, there are many similarities, but also key differences. The below table highlights the main differences:

  Active ETF Managed fund 
(unlisted)
Availability ASX quoted Unlisted 
Liquidity 

 
  • Open-ended
  • Issues / cancels units daily
  • Fund acts as a market maker to provide liquidity
  • Open-ended
  • Regularly issues /cancels units
  • Does not trade on the ASX
Pricing
 
  • Live pricing on the ASX
  • Generally expected to trade at a tight
    spread around the NAV,reflecting the open-ended nature of the fund
  • Instant price confirmation
  • No cooling off rights (same as other listed securities)
  • Entry / exit price generally not known
    until trade + 1 day
  • Cooling off rights as outlined in the Product Disclosure Statement (PDS)
     
Disclosure
 
All holdings are disclosed quarterly with a two-month
lag, subject to ASX approval.
Typically, holdings are disclosed monthly with a 30-day lag.
Minimum investment
 
No minimum Typically A$25,000
Application process including anti-money laundering (AML) and know-your-customer (KYC)
  • Must have a broker account
  • No application form, AML or KYC required apart from the initial application for a brokerage account.
  • Investing directly requires an application form, AML and KYC documents for each fund manager.

 
Essentially the main difference boils down to access, which may mean the Active ETFs may suit investors looking to invest but have smaller deposits.  For more information on how Active ETF differ to other products, download our Active ETF product distinctions flyer (PDF).

Essentially the main difference boils down to access, which may mean the Active ETFs may suit investors looking to invest but have smaller deposits. 

This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”).  Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International.

Investments in overseas markets can be affected by currency exchange and this may affect the value of your investment. Investments in small and emerging markets can be more volatile than investments in developed markets.

This document is intended for use by advisers and wholesale investors. Retail investors should not rely on any information in this document without first seeking advice from their financial adviser. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider these matters before acting on the information.  You should also consider the relevant Product Disclosure Statements (“PDS”) for any Fidelity Australia product mentioned in this document before making any decision about whether to acquire the product. The PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading it from our website at www.fidelity.com.au. This document may include general commentary on market activity, sector trends or other broad-based economic or political conditions that should not be taken as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be taken as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. This document is intended as general information only. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Reference to ($) are in Australian dollars unless stated otherwise. 

© 2018 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.

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