Definitions of an actively managed exchange-traded fund may vary, but one would be hard-pressed to argue that the new First Trust Deutsche Bank Strategic Value Index (AMEX:FDV) is a passive ETF.
FDV tracks an index called the Deutsche Bank CROCI, which is conceptually and thematically defined. The specific idea behind the CROCI is that companies with strong corporate profits and a low cost of capital will outperform the benchmark. The CROCI looks at the ratio of earnings to the weighted average cost of capital. The idea behind this is elegantly simple. The higher the earnings and the lower their cost of money, the better a company looks.
According to First Trust this is a great way to pick stock. First Trust says that the CROCI has annualized returns of 17.94% vs. about half that for the benchmark. Jonathan Bernstein of ETFzone discusses the pros and cons of this approach and notes that the forty companies in the index tend to be the larger cap companies in the S&P 500 index. He also compares it to the "Dogs of the Dow" strategy which works best when few are following it.
Get ready, this is just the tip of the iceberg of active ETFs.