Types of ETFs: Active vs passive ETFs

ETFs can either be passively or actively managed, though the former dominates in Australia in terms of popularity.

• Passive ETFs – These products are designed purely to match a specific index’s performance before fees. Passive ETFs don’t use professional stock pickers and research specialists to build portfolios and time markets with a view to outperform the benchmark and thus have considerably lower running costs. They also publish all their holdings on a daily basis.
• Active ETFs – Actively managed ETFs on the other hand aim to beat the index or achieve a specific return objective by utilizing a significantly higher level of human resources and trading activity. While they can potentially generate higher returns, they also generally charge higher fees for the privilege. Unlike passive ETFs, active funds don’t disclose holdings daily to keep their trades confidential.