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7 Best Active ETFs to Buy and Hold

Actively managed ETFs are a basket of securities chosen by a fund manager.

Lower expense ratios and enhanced tax efficiency have made exchange-traded funds a popular choice among investors. Structured like a mutual fund but traded like a stock, ETFs largely follow a passive management approach. But actively managed ETFs are gaining ground. As ETF portfolio models go, active funds rely on a fund manager to make trading decisions. The objective is to outperform the benchmark market indexes that passive ETFs follow. Within a buy-and-hold strategy, that could result in potentially stronger returns over the long term. Here are the best active ETFs to invest in now.

Next:Technology Select Sector SPDR ETF (ticker: XLK) Credit

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Technology Select Sector SPDR ETF (ticker: XLK)

XLK has several things going for it, including an expense ratio of 0.13% and a dividend approaching 1%. The fund, composed of major tech players like Intel Corp. (INTC), Apple (AAPL) and Microsoft Corp. (MSFT), also boasts a 10-year return of 18.29%. Cryptocurrency expert and entrepreneur David Gokhshtein says XLK’s tech focus is a strength, as the tech and telecom sectors are growing rapidly. Approximately 80% of the fund is weighted toward tech, with the remainder split between the financial and industrial sectors. Gokhshtein says the main risk factor is the fund’s 100% stock composition, which could present diversification challenges for buy-and-hold investors.

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Actively managed ETFs are a basket of securities chosen by a fund manager.

Lower expense ratios and enhanced tax efficiency have made exchange-traded funds a popular choice among investors. Structured like a mutual fund but traded like a stock, ETFs largely follow a passive management approach. But actively managed ETFs are gaining ground. As ETF portfolio models go, active funds rely on a fund manager to make trading decisions. The objective is to outperform the benchmark market indexes that passive ETFs follow. Within a buy-and-hold strategy, that could result in potentially stronger returns over the long term. Here are the best active ETFs to invest in now.

Technology Select Sector SPDR ETF (ticker: XLK)

XLK has several things going for it, including an expense ratio of 0.13% and a dividend approaching 1%. The fund, composed of major tech players like Intel Corp. (INTC), Apple (AAPL) and Microsoft Corp. (MSFT), also boasts a 10-year return of 18.29%. Cryptocurrency expert and entrepreneur David Gokhshtein says XLK’s tech focus is a strength, as the tech and telecom sectors are growing rapidly. Approximately 80% of the fund is weighted toward tech, with the remainder split between the financial and industrial sectors. Gokhshtein says the main risk factor is the fund’s 100% stock composition, which could present diversification challenges for buy-and-hold investors.

AdvisorShares Dorsey Wright Short ETF (DWSH)

DWSH is a newer active ETF that relies on a relative strength investing strategy. This essentially means purchasing securities that have experienced greater price appreciation, relative to similar securities. The fund manager holds those investments, then sells when they begin to underperform. In terms of cost, DWSH has a higher net expense ratio at 0.99%, but that’s balanced against a return of 22% since the fund’s inception in July 2018. Year to date, the fund is down, but its bearish tendencies could be a good choice for holding long term among investors seeking a volatility hedge.

Virtus Reaves Utilities ETF (UTES)

UTES is unique in that it’s the only actively managed utilities ETF. With a 1.98% yield and a three-year total return of 10.72%, it’s established itself as a consistent performer since its entry into the market in September 2015. Jay Rhame, CEO of Reaves Asset Management, says active management is a good strategy for utilities, owing to the sector’s regulatory complexity. Following a reduction of its management fee to 0.49%, UTES is one of the more cost-friendly active ETF buys. “It’s cheaper and it comes with fewer risks than a passive fund because of the ability to get out of stocks that may bring the fund performance down,” Rhame says.

iShares Evolved U.S. Healthcare Staples ETF (IEHS)

While the health care sector stumbled in the first half of 2018, the long-term outlook is optimistic. As the population continues to age, demand for innovation in health care and health care facilities, such as nursing homes and assisted living facilities, should increase. IEHS invests on both sides of the table, with holdings that include UnitedHealth Group (UNH), Abbott Laboratories (ABT) and Johnson & Johnson (JNJ). With a 0.18% expense ratio, it’s a bargain for buy-and-hold strategy followers. The 18.03% total return delivered since its inception in March 2018 underscores the fund’s health.

ARKK Innovation ETF (ARKK)

Thematic ETFs are becoming more common as funds narrow their investment focus. As the name suggests, ARKK’s thematic strategy is centered on companies that are creating positive disruption through technological innovation. Tesla (TSLA) is the fund’s top holding along with other tech innovators. The overall emphasis is on holdings that utilize tech advances in the scientific, industrial, financial and information sectors. The fund’s three-year annualized return is 36.9%. Since inception in October 2014, it’s delivered 23%.

PGIM Ultra Short Bond ETF (PULS)

PULS has the distinction of being voted the best new active ETF of the year for 2019 by Fund Intelligence. As bond ETFs go, it offers an advantage in the current interest rate environment. “Investors that have an allocation to the shortend of the curve can look to PULS for a strategy that keeps duration inside one year, while allocating to various fixed income asset classes,” says Keshav Rajagopalan, co-head of ETFs at PGIM Investments. He says PULS follows a cash alpha strategy, simultaneously striving for consistent total returns while keeping capital preservation in sight. The fund offers diversification through investments in various fixed income asset classes, paired with a low expense ratio of 0.15%.

Vanguard U.S. Multifactor ETF (VFMF)

The objective of VFMF is long-term capital appreciation, which is pursued through investments in small-, mid- and large-cap U.S. stocks. The heaviest weighting is in consumer discretionaries followed by financials. At a little over a year old, the fund has produced a respectable return of 3.59% and has a low expense ratio of 0.18%. Though still relatively new, it has the potential to become one of the stronger actively managed ETF’s offerings with Vanguard’s expertise behind it.

Consider these active ETFs for your portfolio.

Technology Select Sector SPDR ETF (XLK)AdvisorShares Dorsey Wright Short ETF (DWSH)Virtus Reaves Utilities ETF (UTES)iShares Evolved U.S. Healthcare Staples ETF (IEHS)ARKK Innovation ETF (ARKK)PGIM Ultra Short Bond ETF (PULS)Vanguard U.S. Multifactor ETF (VFMF)1 of 10

Rebecca Lake, Contributor

Rebecca Lake has been writing about personal finance and business for nearly a decade. In ...  Read more

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