Another issue for ETFs is their affectation for sector investing. Sector investing tends to be much more volatile than market cap and style investing (think the nine style boxes made famous by Morningstar). One mantra we live by is low risk. With the increased risk brought on by sector investing added to active management which also adds risk, then we would have to look very carefully before suggesting anyone use these active ETFs.
The reason active management can add risk is the manager has to perform well enough to overcome both the index and the expense ratio of active management. There are few enough good managers already in existence who can perform this feat for mutual funds. It’s questionable whether there are any good active managers left for active ETFs.
Another key consideration for this shortage of managers is who is doing the training of these managers. Remember, these are relatively new funds. The question we’re forced to ask is, “Are the blind leading the blind?”