Improving growth expectations and renewed optimism have been dominant themes so far in 2012. Economic data releases on Wall Street have been bolstering equity markets higher since the start of the year, marking an impressive comeback from the dismal days of 2011. Ongoing bullish price action coupled with a growing sense of confidence surrounding the global economic recovery have helped some lesser-known active products generate impressive performances relative to passive equity benchmarks.
With corporate earnings season set to commence later today, many investors are looking for ways to favorably position themselves in anticipation of further upside. On the other hand, some are fearful that a correction could soon follow given the stellar run-up thus far. In either scenario, investors ought to take a closer look at actively managed ETFs; these products could offer a source of uncorrelated returns to broad equity markets, while also potentially outperforming comparable ETFs offering passive exposure within the same asset class.
Actively managed products have come a long way over the past few years, bringing forth a slew of strategies previously out-of-reach for mainstream investors. Although these funds tend to charge higher expense fees when compared with traditional, passive funds, the extra costs associated with some ETFs may be well worth it when it comes to bottom-line returns.
Below we highlight three actively managed ETFs outperforming the broad stock market, as represented by the State Street SPDR S&P 500 (SPY), which is up 11.39% (as of 4/6/2012), from a year-to-date performance perspective:
3. AdvisorShares Madrona Forward Domestic ETF (FWDD): Up 13.92%
The investment objective of this ETF is to provide long-term capital appreciation above the S&P 500 Index. Year-to-date, FWDD has been doing its job quite well, managing to inch ahead of its target benchmark even after figuring in the hefty 1.12% expense ratio of this product. This ETF separates itself from traditional equity products by steering clear of the market cap-weighting methodology; instead, FWDD uses forward-looking financial data to determine allocations. The management expertise offered through this product has been worth the extra fees so far in 2012, although investors should monitor FWDD’s performance over a longer time horizon before making the decision to establish a position [see FWDD Fact Sheet].
2. Columbia Intermediate Municipal Bond Strategy Fund (GMMB): Up 15.78%
It’s a bit surprising to see this fixed income-focused product turn in such an impressive performance alongside equity ETFs. GMMB is designed to achieve a high level of current tax-exempt income by investing in municipal securities [see also High-Tax Bracket ETFdb Portfolio]. The management team behind this actively managed municipal bond fund relies on local, national and global economic conditions to determine allocations rather than simply looking at the size of the debt issued.
1. Columbia Large-Cap Growth Equity Strategy Fund (RWG): Up 20.53%
This is the top performing active ETF year-to-date; with gains nearly double that of the S&P 500, RWG can certainly boast bragging rights when it comes to bottom-line returns. This ETF has been able to charge ahead of most broad-based equity benchmarks thanks to its creative security selection approach; the management team behind RWG combines fundamental and quantitative analysis to select large-cap securities that are deemed to have above-average growth prospects. Given its impressive performance and compelling methodology, it’s a bit shocking to see that RWG has accumulated only $8 million in assets under management since launching in October of 2009.
Disclosure: No positions at time of writing.
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