Last week, a well-known industry publication analysed the relative performance of actively managed ETFs in Europe compared to their benchmarks and found out that somewhat around half of them have underperformed their benchmarks over various time periods. The reactions from market observers were as foreseeable as the results from the performance review. They spoke about marketing driven product launches and the risk for the reputation for the European ETF industry when actively managed ETFs fail to deliver on their promises.
Well, why would one expect that actively managed ETFs will deliver different results with regard to their relative performance versus their benchmarks than actively managed mutual funds? That said, taking the lower management fees into account, one should expect slightly better than average results from actively managed ETFs compared to their mutual funds peers. This is because a high number of managers are able to beat their benchmarks gross of fees but fail to do so after fees and expenses. Therefore, a lower level of fees and expenses should lead to a higher number of outperforming actively managed products. Nevertheless, such general assumptions only work if the number of analyzed products is large enough. Given the currently still somewhat small number of actively managed ETFs available to investors in Europe, one can’t derive any general assumptions from such a comparison. In other words, the results are true for the respective product but can’t be used as general assumptions for the basic population of actively managed ETFs in Europe.
In addition to the number of products, one needs to take the length of the study period into account since a general performance analysis would need a sufficient number of data points to be valid. With regard to this, a general analysis of the performance of actively managed ETFs in Europe is hard to conduct, given the fact that the number of actively managed ETFs has started to increase over the course of the last two years. This means that the number of analyzed products is going down the longer the study period gets. Therefore, taking a longer time-period into account to have a relevant number of data points for such an analysis may lead to an insufficient number of analyzed products to draw any conclusions about the overall quality of actively managed ETFs.
Even as anybody wants to know how actively managed ETFs are doing in comparison to their benchmarks and actively managed mutual funds, it is still too early to run these kind of studies since there are simply not enough products available and most products lack a long enough track record to run a study which can be used to derive results which are valid for a general judgement on actively managed ETFs. Hence, one needs to question whether the results of a study are valid to judge a group of products or are only valid for the evaluation of single products.
The views expressed are the views of the author, not necessarily those of LSEG.
This article is for information purposes only and does not constitute any investment advice.
