FE4051 Introduction To Financial Markets And Institutions.docx
Research Project - Active versus Passive ETFs - An alpha or beta product - Christopher A Sanderson
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U n i v e r s i t y o f R e a d i n g
I C M A C e n t r e
H e n l e y B u s i n e s s S c h o o l
R e a d i n g
R G 6 6 B A
2 3 / 0 4 / 2 0 1 2
Christopher A Sanderson
Supervisor: Prof. Carol Alexander
Research Project:
Active versus Passive ETFs -
An “alpha” or “beta” product
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Contents Pages
Introduction 2-4
1.1. Introduction to the paper
1.2. The fundamentals of ETFs
1.3. Actively managed ETFs
1.4. An introductory background on actively managed ETFs
Literature Review 5-9
2.1. What are active ETFs
2.2. History of active ETFs
2.3. Developments in active ETFs
2.4. Active ETF literature
2.5. Other ETF literature
2.6. Mutual Funds vs. ETFs
2.7. Active vs. Passive management
Methodology 10-11
3.1. Jenson’s Alpha
3.2. Sharpe Ratio
Data and Descriptive Statistics 12-15
4.1. Available ETF Data
4.2. Summary of chosen active ETFs
4.3. Comparable passive ETFs
4.4. Descriptive Statistics
Empirical Results 16-19
5.1. Introduction
5.2. Jenson’s Alpha results
5.3. Sharpe Ratio results
Conclusion 20-21
6.1. Conclusion
References 22-23
Appendix 24-26
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1. Introduction
1.1 Traditionally ETFs have been used for index tracking purposes, passively tracking the market
through either holding the contents or a representative sample of the index. The purpose of an
“actively-managed” ETF would be to follow certain investment objectives and policies rather
than emulate the performance of an index. The question that arises from this newly proposed
concept is whether the ETF wrapper is able to provide investors with alpha through active
management, or remain a solely passive product sufficient at providing beta?
Furthermore many other questions arise on the back of the idea of actively managed ETFs.
These include the possible structural issues that may arise for active ETFs. The uptake of active
ETFs is dependent upon them being able to overcome these issues, but also on their
performance. Actively managed ETFs will be expected to outperform their passive counterpart
and justify the higher fees of active management. My paper will indulge into the issues and
interesting developments surrounding active ETFs, as well as analysing the performance of
several existing active ETFs.
Research into actively managed ETFs is of interest because once structural issues are understood
and ironed out there is potential for a surge in growth for the investment product, capable of
offering active management at lower costs and greater transparency than mutual funds. The
arrival of the active ETF will stoke the flames of the age-old active versus passive debate, and
their performance could go towards supporting or undermining active management.
My research will be of interest to a number of investment industry participants, predominantly
the main purchasers of ETFs; retail and institutional investors. Retail investors primarily use
index based ETFs to gain exposure to a specific market. However those retail investors with an
appetite for exposure to active management have often had to look towards mutual funds. These
private investors will be interested in the development of active ETFs as a simple, inexpensive
way to gain access to active management. Institutional Investors often look for exposure to
certain indices through ETFs but also look to utilise more active asset allocation by investing in
the likes of sector ETFs, which is also useful for risk management purposes. Institutional
investors are interested in the progression of active ETFs as another way to add value or as a
possible financial tool for arbitrage.
This paper will also be of interest to ETF financial planners, investment advisors, fund
organizations, market makers and researchers. But it is the mutual fund industry who have a very
close eye on active ETF movements; some firms have already begun converting their mutual
funds into exchanged traded funds. The first big name investment manager entered the ETF
space in March 2012 with Pimco offering an exchange traded version of the Bill Gross managed
Total Return Fund. With $250million of assets, Pimco’s Total Return Fund is the world’s largest
mutual fund. Pimco’s decision to launch the successful mutual funds as an ETF was coined a
potential ‘game changer’ by Robert Goldsborough, an ETF analyst at Morningstar, and has
sparked interest from other large Investment Management firms such as State Street and Russell
Investment Group.
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1.2 The creation and redemption process of ETFs is very important in highlighting its difference
with mutual funds. ETF shares are created by an authorised participant (AP), who deposits a
portfolio of stocks into a fund in return for a block of unit ETF shares, which can then be sold
on the market. The value of an ETF is based on the end of day net asset value (NAV). Upon
redemption the AP receives back a portfolio of stocks, plus a cash component and any accrued
dividends or capital gains that are not reinvested.
Furthermore the creation and redemption mechanism offers a tax advantage over mutual funds.
Because the redemption process does not create a tax-event, it ensures the ETF structure is more
tax efficient than its mutual fund counterpart. (morningstar’s: ETF guide)
David Patterson (2012) phrased ETFs as listed mutual funds, highlighting 5 important aspects.1
The structure can be seen as a scale from physical to synthetic, through owning the basket of
shares to using swap based holdings. Their exposure whether it be equities, fixed income,
commodities or alternative investments. Governing legislation for European ETFs is the UCITS
IV, though as we will be considering U.S domiciled ETFs the appropriate legislation is the 1940’s
Company Act. The service providers of the ETF are: the advisor who is in charge of the strategy
of the fund, the manager who oversees the execution, administration is in charge of the pricing
of the ETF, the custodian acts as the safeguard and the auditor deals with the accounts.
However it is the strategy that is most important to my research as it can be a passive index
strategy in order to provide beta or an active strategy that attempts to achieve alpha.
1.3 The SEC concept release of actively managed ETFs proposes many questions and discusses
issues that may arise from this new type of investment vehicle. There are certain differences
between the actively-managed ETF and its passive counterpart. Usually because of a transparent
portfolio of stocks an ETF’s net asset value can be disclosed every 15 seconds. However the
trouble with actively managed funds is that by making the portfolio transparent it would lead to
front running, where investors mimic the trades of the active manager. Therefore there exists a
debate over the level of transparency an active ETF should offer. Furthermore, index ETFs have
a set methodology for selecting securities whereas active management is free to invest in any type
and quantity of security. There is a liquidity issue concerning the securities chosen in an actively
managed ETFs portfolio. On top of the disclosure and liquidity issues is the procedure of
applying for ‘exemptive relief’ from the Investment Company Act, which is a long and
bureaucratic process.
1.4 Due to the issues noted above there are currently only 41 active ETFs traded on U.S stock
exchanges and they amount to $5.2 billion in assets, according to ETF issuer AdvisorShares. Of
which half of the assets are dominated by two ETFs, the Pimco Enhanced Short Duration
(MINT) and the WisdomTree Emerging Markets Local Debt (ELD). The only other
geographical area where active ETFs exist is Germany, where several Xetra Active Funds have
1 David Patterson of Duetsche Banks db X-trackers was a guest lecturer at a CISI seminar ETFs Under The Microscope
in January 2012.
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been trading on the Deutsche Borse exchange since 2000. It is reported by Staack (2003) that
“10% of the turnover in Xetra Active Funds is derived from institutional asset managers and
90% from retail investors” This helps explain why active ETFs are yet to attract huge flows of
capital because retail investors are often unable to invest in as high volumes as large institutional
investors. I will now go on to discuss more previous studies relevant to my research in the
literature review in the next chapter.
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2. Literature Review
2.1 Actively managed ETFs combine the active management of a mutual fund within an ETF
structure. They differ from traditional index tracking ETFs because they attempt to outperform a
benchmark rather than track its performance. Fund managers use their skill of stock selection
and market timing along with the opportunity to constantly monitor, react and trade to improve
the return of the fund. This fund management warrants a higher fee on average it is around
2.3%, closer to that of a mutual fund, than that of a more easily managed index ETF which.2
The
fully functional active ETF will offer all the benefits of a traditional ETF such as diversification,
liquidity and tax efficiency. However there is still an issue with the transparency of active ETFs
because fund managers are reluctant to disclose the secrets of their portfolio selection. It is
believed the level of transparency should fall somewhere between a traditional ETF and a mutual
fund.3
Because of the transparency issue they have had a prolonged filing with the SEC who has
to approve the product, granting it ‘Exemptive Relief’ before it can be launched. As a result,
there has been a relatively slow release of active ETFs.
2.2 The first issuance of an active ETF was the PowerShares Active Alpha Q (PQY) and
PowerShares Active Alpha Multi-Cap (PQZ) which were issued in April of 2008, and were
retired last year in a decision to relocate resources, making PowerShares Active Low Duration
(PLK) and PowerShares Active Mega Cap (PMA) the oldest active ETFs still listed. The active
ETF space has been slow in gathering inflows since the inception of these first products in 2008.
There are currently only 4
32 actively managed ETFs in the U.S which is made up of $3.7billion in
ETF assets which is still only a fraction of the $1000billion of total ETF assets. Furthermore the
growth in the early years of index ETFs was much quicker than that of its active cousin, rising
questions over the significance and future importance of the active ETF. Various senior
professionals from the ETF industry have strong feelings that the time for active ETFs will be
2012.
5
“It’s a question of when, not if, active ETFs will be part of the landscape”
– Tony Rotche, State Street Global Advisors
6
“Active management is the next step in the evolution of exchange traded funds (ETFs)”
– Dan Draper, Global Head of Lyxor Exchange Traded Funds (SocGen)
2.3 The development of the active ETF space looks set to gain traction in 2012 with the world’s
largest issuer of ETFs, iShares, having filed for three active exchange traded products. There are
2 Brad Zigler – URL: http://seekingalpha.com/article/295519-active-etf-performance-running-the-numbers
3 Mark Kennedy (2010) Actively managed ETFs – The best of both worlds?
URL: http://etf.about.com/od/etfinvestingstrategies/a/Actively_Managed_ETFs.htm
4 http://www.ft.com/cms/s/0/8763e6c6-3540-11e1-84b9-00144feabdc0.html#axzz1kxZIoEc0
5 John Spence (2011) Index ETFs Still Rule Despite Promise of Active Funds
URL: http://seekingalpha.com/article/298200-index-etfs-still-rule-despite-promise-of-active-funds
6 URL: http://www.investmentweek.co.uk/investment-week/opinion/1362370/etf-success-fuels-active-versus-
passive-debate
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other big game players such as State Street, Russell Investments and Legg Mason also increasing
their involvement. A promising sign for the active ETF space is that Pimco are set to launch a
version of Bill Gross’ Total Return Fund in an ETF wrapper. With various large investment
management firms pushing filing through for ‘exemptive relief’ for their active ETFs has
signalled a number of analysts to foresee an increasing amount of money pour into the active
ETF products throughout 2012.
“They (fund managers) see that there’s a ton of money to be raised. It’s going to be the new
wrapper of choice.”7
– Josh Brown, Fusion IQ
2.4 Due to active ETFs being a new product with a sluggish uptake there are very few academic
papers available for consideration. Rompotis (2009) evaluates three of PowerShares first active
ETFs; the Active Alpha Q Fund(PQY), the Active Alpha Multi-Cap fund and the Active Low
Duration Fund(PLK), for the first 6-months after their launch. From the study it was established
that these active ETFs underperform the corresponding passive ETFs and the market index,
depicted by the Sharpe and Treynor ratios. Also a regression analysis highlighted that active ETF
manager apparently lack good stock selection and market timing skills. This is important for my
paper because the higher management fees necessitate managers to provide these skills, therefore
if they fail to provide alpha then the ETF structure would be better suited to its traditional use of
being a lower fee index tracking product. I aim to consider other active ETFs for a longer period
measures to enhance the view on the performance of active ETFs.
Rompotis (2010) evaluates the bid-ask spread of 43 passive and 17 active ETFs traded on XTRA
board between 2003 and 2005. The conclusions reached are that passive ETFs have a higher bid-
ask spread than their comparable active product, the bid-ask spread is negatively related to
volume (which was to be expected) and the absolute value of ETF’s premium positively affects
the bid-ask spread. Whilst the consideration of bid-ask spreads is not the preliminary purpose of
my research, I intend to include it along with the total expense ratio (TER) as they are important
implications regarding the investment in active ETFs for individual investors.
Schizas (2011) has written the most recent paper regarding active ETFs in which he explores the
structure of active ETFs and the obstacles arisen by their inception over the last few years. He
goes on to compare the performance of five ETFs [Active Low Duration (PLK), Active Mega-
Cap (PMA), Active Alpha Q (PQY), Active Alpha Multi-Cap (PQZ) and Active US real estate
(PSR)] based on 2 years of daily data until March 2010. Conclusions include that active ETFs are
not as active as they are considered by many market participant so there is a strong link between
the performance of active and passive ETFs. He also concludes that the performance of active
ETFs shows a lacking in market timing skill, whilst passive ETFs are more volatile and less
profitable. Interestingly in most cases it is seen that the active ETF surpasses mutual funds
returns. Schizas (2011) has used a much longer period of data than Rompotis (2009) and can
therefore be seen as more reliable results.
7 John Spence (2011) Active ETFs Seen Taking Off in 2012
URL: http://www.etftrends.com/2011/12/active-etfs-seen-taking-off-in-2012/
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Furthermore in 2002 the Securities and Exchange Commision published a Concept Release8
which takes into account the proposals for actively managed ETFs, considering any problems
and questioning the concept. There are 40 questions highlighted in the Concept Release,
Gastineau (2010) expressed the main concern as actively managed ETFs being priced at end-of-
day net asset value. This means that they are unlikely to reach the trading volumes of the SPDR
or QQQQ because they are not based on intraday pricing and are therefore traded less
frequently throughout the day. Another concern is that despite the available limited-function
actively managed ETFs working reasonably well for large-cap portfolios they perform less so for
mid-cap and small-cap.
2.5 Other important strand in the ETF literature includes Kostovetsky (2002) which highlights
the key differences between index mutual funds and their passive ETF counterpart as:
management fees, transaction fees and taxation efficiency. The rise of ETFs has taken some
attention away from the mutual fund industry however Guedji & Huang (2009) highlight that the
two products can co-exist for clientele with differing liquidity preferences. Open Ended Funds
benefit from liquidity insurance whilst ETFs are more efficient in tracking less liquid indices and
are beneficial for individuals with longer investment horizons.
Elton and Gruber (2002) evaluate the performance of the extremely popular Standard & Poor’s
Depository Receipts (SPDR) known as Spider, noting that their underperformance of 28 basis
points below the S&P index is due to a loss of income through holding the underlying shares
dividends as cash.
Poterba & Shoven (2002) expand the research of Elton et al. (2002) by considering a longer
period for the SPDR ETF in comparison to the Vanguard index 500 mutual fund. The results
showed that, on average, the pre-tax return of the SPDR fell 17 basis points short of the
Vanguard Index 500 and 23 basis points short of the return of the S&P 500 Index.
Aber (2009) compare the price volatility and tracking ability of four iShares ETFs with
conventional mutual funds; finding that despite having similar correlation with their benchmarks,
the Vanguard conventional index funds had slightly lower tracking error.
Furthermore Rompotis (2009) evaluates the performance of ETFs and index funds within the
Vanguard family and found that on average they share similar risks and returns inferior to that of
their benchmarks, despite being fully invested in their benchmarks resulting in lower tracking
error.
On the contrary Svetina (2010) finds that 83% of ETFs available do not have corresponding
index funds and tend to track less popular indices, this is consistent with Guedji et al. (2009) in
that they can track less liquid indices and therefore widens investors options for passive
investment. The remaining ETFs that can be seen to have comparable index funds are seen to
outperform their retail index fund competition and rival that of institutional index funds. Hence
an influx in ETFs has been seen to reduce the flows into index funds, but not eradicate the
8 http://www.sec.gov/rules/concept/ic-25258.htm
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existence of index mutual funds as they are seen very useful for investment in {U.S 401(k)]
accounts – plus, as Kostovetsky (2002) states there are tax and fee preferences of investors.9
2.6 Furthermore it is useful to consider publications about mutual funds, which have dominated
the investment universe for funds, against the spurting, new boy ETF.
Blake (1993) found that bond funds underperform their index after expenses and that a negative
relationship between expenses and performance, as a percentage increase expenses decreases
performance by one percentage point.
However Malkeil (1995) states that funds have underperformed their benchmark both after
expenses and gross of expenses, highlighting the importance of survivorship bias that Blake
(1993) played down.
Gruber (1996) conducts research into a growing mutual fund industry in 1996 and found that
despite average performance being lower than that of index funds money still flows into active
mutual funds. The highlighted reason for this is that the fund is priced at net asset value and thus
management ability may not be priced in.
Hubscher (2003) highlights that in the mutual fund industry that index funds perform better in a
bull market environment but tend to lag in a bear market, and hence inversely active funds tend
to outperform in the bear market but underperform in the bull market. This can be seen to be
due to the benefits of active management through actively trading in more troubled times when
index funds refrain from changing their holding, remaining passive. A good example of this is in
the early 2000’s with the large U.S corporate scandals including Enron, as active managers sold
the rapidly weakening stock passive funds were forced to hold on until they were rebalanced
when it was too late.
Fortin (2002) also shows that index funds outperform actively managed funds in all bond funds
and most of the equity funds considered. However there are some exceptions that favour the
performance of actively managed funds such as that of Small Company Equity (SCE), which
may be due to market inefficiencies as all information for small companies is not public; and
during entry and exit of a recession which refers to the point of there being an existence of
market timing skill of fund managers.
Despite Fortin (2002) observing that actively managed funds have outperformed index funds
during periods of recession, Fama & French (2009) reiterate Malkeil (1995) findings that fund
managers do not have the skill to enhance returns and do not cover the fees they impose on
investors.
Barras (2010) concludes that three quarters of funds exhibit zero alpha, net of expenses, and are
therefore incapable of beating their benchmark. Also it was found that there were a number of
positive alpha funds achieved by manager skill prior to 1996, which supports the Gruber (1996)
9 Investors often now chose ETFs as their investment preference for greater tax efficiency. Investors will also have
preferences with management fees depending on their investment style in 2002 mutual funds offer higher fees for
active investment whereas ETFs can offer lower fees for an index tracking investment.
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paper on the influx into active mutual funds, but very few 10 years later by 2006. This could be
due to investors becoming more rational and the increased efficiency of a technologically
developing worldwide market.
Moreover in the mutual fund space it can be seen that the performance of active mutual funds
underperform index funds and their benchmarks.
2.7 The age old active versus passive debate is very significant to my discussion and therefore I
will consider various papers.
The most familiar active versus passive paper is Sharpe (1991) as it shows using simple
arithmetic of addition, subtraction, multiplication and division that: i) before costs, the return of
active investment is equal to that of a passive investment, and ii) after costs, the return of an
active investment will be less than a passive investment.
Shankar (2007) compares the performance of an actively constructed S&P index with the
performance of passively constructed Russell index for both large and small cap indices over the
10 year period of 1994-2004. It was found that for the large-cap S&P 500 index and Russell 1000
there was very slight difference, however the actively selected S&P SmallCap 600 would have
outperformed the passive Russell 2000 index by 9.2%. This highlights that there is an
opportunity for stock selecting skill in the small cap sector.10
French (2008) examines the difference between actual and passive costs of investing as a
calculation for the cost of active investing.11
Conclusions made, using data over the period 1980-
2006, were that the average annual cost of price discovery is 0.67%. This is very similar to the
average difference between passive and active ETFs, which is around 0.60%.
Jarrow (2010) concludes that positive alphas cannot be considered as the equivalent of arbitrage
opportunities. Evaluation of two examples, credit rating arbitrage, created by the crooked ratings
of sub-prime CDOs, and inside information, found that positive alpha can be created through
these opportunities. Active management only obtains alpha through taking advantage of market
imperfections or create false alpha due to unobservable risk factors.
In conclusion there is still some debate over the usefulness of active management. There have
been papers such as Blake (1993) and Malkiel (1995) proving that active managers fail to produce
abnormal returns with respect to passively managed funds. Research into the active versus
passive debate shows, in most cases, that active management does not provide outperformance
over and above the market. On the other hand, there have also been studies that have revealed
that the active managers beat the market and provide their investors with positive risk-adjusted
returns. It is the possibility of alpha that continues to lure investors into searching for above
average market returns.
10 Information on small cap stocks is less readily available and therefore is considered weak-form efficient market.
11 The estimate actual cost of investing includes: fees and expenses of mutual funds, Hedge Funds, Funds of Funds
and investment management costs paid by all investors and institutions.
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3. Methodology
3.1 The methods I will use to analyse the performance of the 6 actively managed ETFs are the
Jenson’s Alpha and the rolling Sharpe ratio. Both performance measures will give me a detailed
overview to discuss the performance and more specifically the alpha creating ability of actively
managed ETFs.
3.2 To evaluate the performance of the actively managed ETFs we need to calculate their risk
adjusted performance against the equivalent passive ETF and the corresponding benchmark.
The passive ETFs are designed to track the market and should therefore create beta whereas the
actively managed product should seek to achieve alpha by taking on more than the market risk.
The most suitable measure of calculating risk adjusted performance is to use Jensen’s alpha. The
alpha coefficient is an additional parameter of the Capital Asset Pricing Model (CAPM), it
represents the intercept of the security characteristic line:
( )
where, represents the daily(t) return of the ETFi. is the risk free rate of return available,
because all of the ETFs we will consider are domiciled in the U.S. we will use the one month U.S
Treasury Bill as this is deemed to be risk free. The, , is the daily(t) return of the market(M)
which will be expressed as the benchmark for each ETF e.g. S&P 500 or the Russell Top 200.
The beta, , is a measure of the sensitivity of the ETF return to the market return, in other
words it is the non-diversifiable risk. It is computed to separate the market risk with the
additional risk an investor is willing to take on top of the market risk. If the beta of an ETF is
one it has a perfect relationship with the performance of the market, a beta of more than one
means the ETF would be more volatile than the market and a beta of less than one
The main focus will be on the alpha, , as this is the excess return above the market. It is a
measure of the active return on an investment for the risk it has borne. High positive alpha
coefficients indicate that the portfolio has achieved abnormal returns for the level of risk taken
whereas negative alpha indicate the return was too low given the amount of risk, according to
the efficient market hypothesis.12
Jensen’s alpha is a useful measure for analysing active
management and is therefore very much suited to the review of actively managed ETF
performance.
The coefficients for the alpha and beta of each of the actively managed ETFs will be obtained
through the regression of the active ETFs daily returns on the returns of the market (proxy
benchmark). The regression will be performed through an excel spread sheet that gives the full
regression output including the significance probability, t-statistics and R-squared as well as the
alpha and beta coefficients.
12 Efficient Market Hypothesis
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3.3 The Sharpe ratio is a risk adjusted performance measure. The returns of an asset are
subtracted by the risk free rate to give the excess return for the investment which is then divided
by the standard deviation of the returns of the asset to give the Sharpe ratio. The ratio is valuable
in investigating the reward for bearing an extra unit of risk, hence a higher ratio is more desirable
and a negative ratio indicates that the risk free rate would fare better. Because the formula for the
Sharpe ratio is:
13
( )
To calculate the rolling Sharpe ratio you need the daily excess returns for the asset which is
calculated by subtracting the daily 1-month T-Bill from the daily returns for the asset. We then
calculate the average and the standard deviation of excess return from the past 250 days, before
inputting these figures into the formula below. This Sharpe ratio for the actively managed ETFs
is calculated for the day beginning 250 days from inception until the 15th
Feb 2012. The same
time frame is taken for the corresponding passive ETF and benchmark
14 √
We are using the rolling Sharpe ratio to analyse the active ETF because it enables me to plot the
continued Sharpe ratio onto a graph alongside the passive equivalent and its benchmark. This
way I can clearly see the risk adjusted performance of the active ETF in respect to its alternatives
and comment on its performance over time.
13 is the return of asset A; is the risk free rate of return; and is the standard deviation of asset A
14 is the average excess return for the asset, A, over the previous 250 days; is the standard deviation of the asset, A,
returns over the previous 250 days
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4. Data
4.1 There are 41 actively-managed ETFs available in the ETF universe, of which 12 are actively
managed equity ETFs, as of the 1st
of March 2012. I am considering only active equity ETFs for
consistency when analysing their performance. All the ETFs I am going to consider have
different styles, strategies and focuses on equities within their portfolio. The aim of the active
equity ETFs is to achieve long-term capital appreciation and current income rather than track a
particular index. The active ETFs construct their portfolio of shares based on their investment
mandate that they believe will offer the best results to achieve alpha. As the 6 ETFs I will
consider all invest in the same asset class it will be useful to compare which product is the best
performing and which are the alpha providing products.
I will consider the 6 actively managed equity ETFs with the highest average trading volume. I
have also had to ensure that the required data for analysis is available for these ETFs, their
benchmarks and the most suitable passive ETF for comparison. As actively managed ETFs they
are not designed to track the performance of a specific benchmark, this will instead be used for
performance comparison with the market proxy. The benchmarks I will use are the one stated in
the ETFs prospectuses; otherwise I will take the most appropriate benchmark for the given
ETF. Because the active ETFs I will consider are relatively recently launched in comparison to
their older passive counterparts I will gather the data on the active products from their inception.
I will take the daily end of day prices of the active ETFs, as this will give a better indication of
volatility and returns.
Table 1: The table below shows the name and corresponding ticker of the active and passive ETFs I will
consider in my research, along with the names of the most appropriately corresponding benchmarks.
4.2 I will provide a brief description and highlight the key areas of the ETFs I am going to
consider. The information provided on each ETF is acquired from the issuers’ prospectus on
the product. All the ETFs are active and thus do not aim to track or beat a benchmark, the
relevant benchmarks are used for performance comparison. The 6 active ETFs are all of U.S
domicile and strive for long-term capital appreciation.
The first active ETF is the Columbia Concentrated Large Cap Value Strategy Fund (GVT) which
uses a bottom-up stock selection method, concentrating on company fundamentals. The focus
of the fund is on individual value large cap U.S stocks and therefore attempts outperform the
Russell 1000 Value Total Return Index. GVT has an expense ratio of 0.79%. The fund’s
inception was on the 4th
May 2009 and was formerly the Grail American Beacon Large Cap
Active ETF Ticker Benchmark Passive ETF Ticker
Columbia Concentrated Large Cap
Value Strategy
GVT
Russell 1000 Value
Index
iShares Russell 1000 Value Index
Fund ETF
IWD
Columbia Large-Cap Growth Equity
Strategy
RWG
Russell 1000 Growth
Index
iShares Russell 1000 Growth Index
Fund ETF
IWF
Columbia Growth Equity Strategy Fund RPX S&P 500 SPDR S&P500 ETF SPY
PowerShares Active Mega Cap Fund PMA S&P 500 SPDR S&P500 ETF SPY
DENT Tactical ETF DENT S&P 500 SPDR S&P500 ETF SPY
WCM/BNY Mellon Focused Growth
ADR ETF
AADR MSCI EAFE
iShares MSCI EAFE Index Fund
ETF
EFA
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Value ETF before being taken over by the new investment manager, Columbia Investment
Management Investment Advisors who charge a 0.79% net expense ratio.
The second Columbia ETF is the Large-Cap Growth Equity Strategy Fund (RWG) which
combines fundamental and quantitative analysis with management of risk to select stocks with
above average growth prospects. Like the Value strategy fund RWG invests in large-cap stocks
but concentrates on those that still have potential for future growth such as many tech stocks.
Formerly the RP Focused Large Cap Growth ETF, the inception of RWG was on 10/02/2009
and charges a 0.89% expense ratio.
The third Columbia ETF is their Growth Equity Strategy Fund (RPX) which was formerly called
the RP Growth ETF when introduced on 10/02/2009. RPX is very similar to Columbia’s RWG
ETF in that it also looks to invest in stocks with above average growth prospects using the same
strategy of fundamental and quantitative analysis for the same expense ratio. However the RPX
differs by not overweighting technology stocks and offers a much more diverse exposure in
sectors such as health care, industrials and energy.
Invesco PowerShares Active Mega Cap Fund attempts to outperform the Russell 200 index and
capture alpha through considering key financial indicators and behavioural concepts in its active
management selection process. The Fund’s inception was in April 2008 and was one of the first
active ETFs on the market. The PMA exchange-traded fund charges a 0.75% expense ratio for
concentrating on large-cap value stocks and includes key holdings in large firms across Energy,
Health Care and I.T within a well-diversified portfolio of 56 holdings.
AdvisorShares DENT Tactical ETF uses proprietary economic and demographic analysis to
formulate a picture of U.S and other major economies and their spending patterns. Then the
ETF adopts a strategy to correspond to these investment viewpoints. The fund’s holdings are
varied across asset classes to reflect its investment strategy. The fund is active in responding to
market changes and thus an increase in the number of trades significantly inflates the (net)
expense ratio which is the highest of those considered at 1.50%.
The second AdvisorShares ETF is the BNY Mellon Focused Growth ADR ETF is the most
recently released active ETF I will consider, its inception was in July 2010. AADR attempts to
achieve outperformance of the MSCI EAFE index through investing in large-cap, non U.S, high
quality growth stocks in traditional growth sectors. The active ETF picks stocks that are
reasonably priced but have benefited from lasting global trends, a growing competitive advantage
or an outstanding management team. The fund is geographically diversified across Europe, Asia,
Middle-East and, Latin and North America and warrants a net expense ratio capped at 1.25%.
4.3 The data on active, passive ETFs and benchmarks was collected from the Bloomberg
terminal where it was extracted into excel spread sheets. The data for the risk free rate of return,
the 1-month US Treasury Bill data was available from the federalreserve.gov website. The data
used is daily end of day prices calculated net of fees, then I can calculate daily returns for the
selected period from inception to February of 2012. From these daily returns I can then go on to
calculate the performance measures described in the methodology.
15. 14 | P a g e
4.4 I have provided a brief overview of all passive ETFs. Three of the active ETFs (RPX, PMA,
DENT) will be compared against the State Street Global Advisors SPDR S&P500 ETF. It is
known as the ‘Spider’ and is the oldest passive ETF on the market, first issued on the American
Stock Exchange (AMEX) in 1993. It is still widely regarded as the best index tracker for the
S&P500 today, and so it is suitable to use as a passive tracker ETF for the S&P500 benchmark.
The GVT and RWG ETFs attempt to outperform the Russell 1000 Growth and Russell 1000
Value indices respectively. iShares, the worlds’ largest ETF issuer by volume, have ideal
benchmarks for these two indices; the iShares Russell 1000 Growth Index ETF (IWD) and the
iShares Russell 1000 Value Index ETF (IWF). Lastly for the BNY Mellon ETF, AADR, I will
again use an iShares ETF, this time the iShares MSCI EAFE Index ETF which tracks the MSCI
EAFE Index excellently.
Table 2: The table shows the descriptive statistics results from preliminary analysis including the average
annual return, standard deviation, and minimum and maximum daily returns of the 6 ETFs in
consideration and their passive equivalent and benchmarks. Key: A – Active ETF, P – Passive ETF, B –
Benchmark.
Type Description Ticker
Average
Return St.Dev Min Max
A Columbia Concentrated Large Cap Value Strategy Fund GVT 12.24% 17.75% -10.17% 11.70%
P iShares Russell 1000 Value Index Fund ETF IWD 12.61% 17.67% -7.07% 5.00%
B Russell 1000 Index RIY 12.21% 16.78% -6.87% 4.95%
A Columbia Large-Cap Growth Equity Strategy Fund RWG 9.56% 19.22% -7.86% 8.89%
P iShares Russell 1000 Growth Index Fund ETF IWF 12.54% 16.03% -6.30% 4.74%
B Russell 1000 Growth RLG 11.72% 16.13% -6.44% 4.69%
A Columbia Growth Equity Strategy Fund RPX 11.59% 23.96% -9.23% 17.60%
P SPIDER IVV 11.08% 16.29% -6.51% 4.65%
B S&P 500 SPX 9.76% 16.44% -6.66% 4.74%
A PowerShares Active Mega Cap Fund PMA 5.74% 23.79% -9.18% 9.94%
P SPIDER IVV 4.57% 23.66% -9.84% 14.52%
B S&P 500 SPX 3.15% 23.68% -9.03% 11.58%
A DENT Tactical ETF DENT -0.87% 12.53% -3.52% 5.31%
P SPIDER IVV 9.65% 16.26% -6.51% 4.65%
B S&P 500 SPX 8.41% 16.42% -6.66% 4.74%
A WCM/BNY Mellon Focused Growth ADR ETF AADR 11.20% 18.36% -7.87% 5.40%
P iShares MSCI EAFE Index Fund ETF EFA 8.09% 22.09% -7.47% 6.74%
B MSCI EAFE MXEA 4.79% 17.60% -5.12% 5.11%
16. 15 | P a g e
4.5 The results show that the average annual returns for active ETFs (RPX, PMA, AADR)
outperform both the passive equivalent and their benchmark. Whilst the ETFs (RWG, DENT)
both underperformed the comparable and the Columbia (GVT) was indifferent in returns. The
standard deviations for the active ETFs (RWG, RPX, AADR) are higher than their passive
equivalents which is unexpected as active ETFs can change their positions so as to limit
volatility. Whereas AADR has a lower standard deviations than the passive iShares ETF, and
(GVT, PMA) have standard deviations very similar to their passive counterparts.
17. 16 | P a g e
5. Empirical Results
5.1 By putting the methodology and data sections together I am able to compute the empirical
results. I will compare and analyse the results from the risk-adjusted regression including the
Jenson’s Alpha and also results from the Sharpe ratio calculations. The calculation of the
Jenson’s Alpha through risk-adjusted regression analysis described in the methodology has been
completed and reported in the table below.
Table 3: The table below shows the results from the regression analysis of each of the active ETFs in
consideration. The alpha and beta t-statistics are shown below the corresponding values. The prob.
column shows the probability of the coefficients at the 95% confidence level.
Active ETF Benchmark Alpha Prob. Beta Prob. R²
GVT Russell 1000 Value 0.00026 0.0009099 0.3630335 0.424245 0.117834
0.783343 11.638006
RWG Russell 1000 Growth 7.49E-05 0.0007728 0.609008 0.677418 0.261094
0.210752 17.472717
RPX S&P 500 0.000306 0.0013029 0.2512799 0.347097 0.029752
0.603658 5.147213
PMA S&P 500 7.33E-05 0.0006666 0.5299398 0.569529 0.329995
0.242459 26.259005
DENT S&P 500 -0.00021 0.0001982 0.4708656 0.510609 0.380581
-1.01965 23.252651
AADR MSCI EAFE 0.000282 0.001002 0.681443 0.746246 0.426762
0.768514 20.653929
5.2 From the results we can see that none of the alpha coefficients of the active ETFs are
significant at the 99% confidence level. However all alpha coefficients, apart from the DENT
ETF, are positive values which differs from the findings of Rompotis (2009) where all of the
alpha coefficients in that study were negative. The negative alpha of DENT suggests that this
ETF performs worse than the market, despite this assumption we cannot be confident as the
negative value is not significant at the 99% level. Although the other ETFs provide positive
alpha the figures are not significant enough to be confident that they can provide alpha. Active
ETFs should be able to provide investors with above average excess returns, moreover from our
results it can be seen that the active ETFs in consideration were unable to provide investors with
significant alpha over the examined period.
Furthermore, analysis of the beta coefficients highlights that all of the beta values are
significantly different from zero at the 95% level. The beta values are fairly high, especially RWG
at 0.609 and AADR at 0.681, for actively-managed funds whose aim is to beat not track the
market. This shows that despite the ETFs being active they are still fairly defensive in their
approach. The fund managers may have decided to take a more defensive approach due to the
2008 credit crisis and the on-going 2010 sovereign debt crisis, which has resulted in a negative
outlook for many stocks.
20. 19 | P a g e
Graphs 1 – 6: The graphs below show the rolling Sharpe ratios of each of the 6 Active ETFs are plotted
(in red) alongside their proxy benchmark (shown in red) and the passive comparable ETF (represented by
a green line). All the graphs have the same formatted time frame and Sharpe ratio figures.
5.3 The rolling Sharpe ratio, as described in the methodology section, results show that the
majority of active ETFs considered underperform both their benchmark and passive ETF
counterpart. All of the active ETFs seem to follow very similar patterns across the time horizon
in consideration with a period of underperformance across all the active ETFs in the first half of
2011. This is consistent with Hubscher (2003) as actively-managed funds tend to perform better
in a bear market but underperform in a bull market. As the graph shows a rally in early 2011 saw
the active ETFs risk adjusted performance teeter slightly below that of its passive counterpart.
The performance of active ETFs in my findings are consistent with Rompotis (2009) as active
ETFs are seen to have far more inferior performance to that of both the benchmark and the
passive ETF, SPY. The underperformance of the DENT ETF is catastrophically bad from the
period of December 2011 where the active ETF has Sharpe ratios of between -1 and -2 whereas
the passive SPY ETF and the S&P500 benchmark have Sharpe ratios of between -0.5 and 0.5.
The underperformance of actively managed ETFs in my results is consistent with results of
actively managed mutual funds in Barras (2010), where it is seen that active funds are incapable
of beating the benchmark.
The results of the PowerShares Active Mega-Cap ETF (PMA) are very similar to both the
benchmark and the passive ETF on a risk-adjusted basis. This is in line with research by Schizas
(2011) who concluded that some active ETFs including PMA are ‘not as active’ as they may be
considered my market participants.
The passive ETFs are seen in every case to have very similar risk-adjusted performance to its
corresponding benchmark, which was to be expected of the index tracking ETF. The Spider
ETF (SPY) designed at tracking the S&P500 can be seen to track the index extremely closely
which shows a change from Elton & Gruber (2002) in that there is no longer an
underperformance of 28 basis points. It is probably due to a further increase in the size and
popularity of the Spider ETF that has enabled expense ratios to be pushed down to 0.09%. The
EFA ETF in the last graph is designed to track the MSCI EAFE index and it can actually be
seen to outperform the index, which supports the point Guedji & Huang (2009) make, that
ETFs are more efficient in tracking less liquid indices.
Despite the short evaluation period the newest ETF considered, the AdvisorShares active ETF
(AADR) can be seen to outperform both the passive ETF (EFA) and the benchmark MSCI
EAFE. The correlation between the active, passive and benchmark is still fairly high but it is the
closest of the ETFs considered to providing alpha for investors. As this is a fairly newly released
actively managed ET, in April 2011, is this a sign that more recent active ETFs are getting better
at being able to create alpha for investors?
21. 20 | P a g e
6. Conclusion
6.1 ETFs were designed to provide a better performing market tracker to the mutual fund. The
ETF was such a triumph that it replaced the mutual fund as an alternative, cheaper, tax-efficient,
beta providing investment. The advance of the ETF in the passive management space posed the
question as to whether the ETF wrapper could emulate the success for active management.
Despite hurdles over disclosure and holding issues, active ETFs have made some ground and in
spite of much slower growth than the passive products there can be seen to be some
development for active ETFs.
Elton & Gruber (2002) stated that the Spider index ETF had problems at the beginning such as
the inability to earn income on dividends, capital gains and security lending, these difficulties
were overcome and have subsequently seen index ETFs flourish. Active ETFs have too had
several teething problems to overcome regarding the disclosure of its holdings and transparency
issues.
There are only a handful of papers that consider actively managed ETFs including two from
Rompotis (2009 & 2010) and one by Schizas (2011). My paper adds to the research into active
and passive management within the ETF industry, exploring the possibility of the ETF as an
alpha providing investment.
The descriptive statistic results show that the actively managed ETFs (RWG, RPX, PMA)
outperform their passive counterparts and corresponding benchmarks, but at the cost of higher
volatility. The ETF (DENT) has a negative average annual return, whilst the active ETF
(AADR) is the only outperformer that does so at a lower volatility than the passive ETF.
From my calculations of Jenson’s Alpha it is seen that all of the alpha coefficients are positive
apart from the DENT ETF. However none of the 6 alpha coefficients calculated are significant
at the 99% confidence level. Therefore we can conclude that none of the ETFs considered are
able to offer above average excess returns. The Beta coefficients are all positive and highly
significant, especially RPX and AADR with betas of 0.609 and 0.681. These figures for the beta
calculation go a long way towards answering the proposed question of the paper, as the active
ETFs fail to provide investors with alpha and have significant beta coefficient. From the sample
of active ETFs chosen it is clear that the ETF is still a beta providing product.
With regards to the performance rating through the rolling Sharpe ratio, four of the active ETFs
(GVT, RWG, RPX, PMA) can be seen to follow very similar performance to that of the passive
equivalent and the benchmark, with slight underperformance in the rally in the first half of 2011.
The DENT ETF is seen to experience extremely poor risk adjusted performance, with Sharpe
ratios well below the S&P 500 benchmark. However the most recent of the ETFs considered,
the AADR was observed to have outperformed both the passive ETF and the benchmark over
its first 10 months, although this is not a significant enough period on which to truly base
performance analysis. Therefore overall it can be seen that on a risk adjusted basis the active
ETFs are seen to underperform their passive equivalents and the proxy benchmarks.
22. 21 | P a g e
In conclusion the findings from my research are very much in line with past studies from
Rompotis (2009) on ETF performance and the many other papers on active versus passive
management in the mutual fund industry.
There has always been a debate over the choice of active or passive investment, though the
majority of studies including my own comply with Sharpe (1991) stating that after costs, the
return of an active investment will be less than a passive investment. So are active ETFs simply
another investment product aimed towards chasing the elusive alpha? After all as Ferri (2012)
put quite critically a diversified portfolio of low-cost index tracking ETFs has outperformed over
95% of portfolios using comparable active funds. So should there be any reason to believe future
active ETFs will be a better investment than a portfolio of passive funds?
There is still a large investor audience who are in favour of the benefits of active management.
According to the ICI, 80% of equity mutual fund assets are in actively managed mutual funds.15
This means that the scope for converting these active mutual funds into active exchange traded
funds is huge. The future of active ETFs is still looking bright as more fund managers are
applying for “exemptive relief”. Including fund management firm Van Eck Global, who manage
over $33 billion; have filled a request to convert their traditional mutual fund shares to exchange
traded shares. Therefore as fillings continue to get pushed through and investors become more
aware of the benefits of the ETF structure for active management, the potential for development
in this industry is huge. It is only a matter of time before actively managed ETFs become a
polished product capable of offering investors active management in an ETF wrapper. In
conclusion active ETFs may not be able to provide investors with alpha however they will still
offer investors other benefits of active management such as better risk adjusted return or lower
volatility.
15 Weinberg, A.I., (March 2012) Real Potential or Active ETF Imagination? Forbes
URL: http://www.forbes.com/sites/ariweinberg/2012/03/13/real-potential-or-active-etf-imagination/2/
23. 22 | P a g e
7. References
Aber, J.W, Li, D. and Can, L., (2009) Price Volatility and tracking ability of ETFs. The Journal of
Asset Management. Vol. 10 Issue 4, p210-221.
Barras, L., Scaillet, O., and Wermers, R., (2010) False Discoveries in Mutual Fund Performance:
Measuring Luck in Estimated Alphas. The Journal of Finance. Vol. 65 Issue 1. p.179-216.
Blake, C.R., Elton, E.J., and Gruber, M.J., (1993) The Performance of Bond Mutual Funds. The
Journal of Buiness. Vol. 66 Issue 3. p. 371-403.
Dougherty, C., (2006) Introduction to Econometrics. 3rd
ed. Oxford University Press.
Elton, E.J, Gruber, M.J, and Comer, G., (2002) Spiders: Where Are the Bugs? Journal of Business.
Vol. 75 Issue 3, p.453-472.
Fortin, R., and Michelson, S., (2002) Indexing Versus Active Mutual Fund Management. The
Journal of Financial Planning.
French, K.R., and Fama, E.F., (2009) Luck versus Skill in the Cross Section of Mutual Fund
Alpha Estimates. The Journal of Finance. Forthcoming. Available at SSRN:
http://ssrn.com/abstract=1356021
French, K.R., (2008) Presidential Address: The Cost of Active Investing. The Journal of Finance.
Vol. 63 Issue 4, p1537-1573.
Fuller, R.J, Han, B. and Tung, Y., (2010) Thinking about Indices and “Passive” versus Active
Management. The Journal of Portfolio Management. Vol. 36 Issue 4.
Gastineau, G.L., (2009) The Exchange-Traded Funds Manual. 2nd
ed. John Wiley & Sons, Inc.
Gruber, M.J., (1996) Another Puzzle: The Growth in Actively Managed Mutual Funds. The
Journal of Finance. Vol 51 Issue 3. p.784-810.
Guedji, I and Huang, J., (2009) Are ETFs Replacing Index Mutual Funds? AFA 2009 San
Francisco Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1108728
Harper, J.T., (2006) Performance comparison between exchange-traded funds and closed-end
country funds. Journal of International Financial markets, Institutions and Money. Vol. 16, Issue 2. p.-
104-122
Jarrow, R.A., (2010) Active Portfolio Management and Positive Alphas: Fact or Fantasy? The
Journal of Portfolio Management. Vol. 40 Issue 4, p17-22.
Kostovevestsky, L., (2003) Index Mutual Funds and Exchange-Traded Funds. The Journal of
Portfolio Management.
Malkiel, B.G., (1995) Returns from Investing in Equity Mutual Funds 1971 to 1991. The Journal of
Finance. Vol. 50 Issue 2. p.549-572.
24. 23 | P a g e
Miller, M. R., (2005) Measuring the true cost of active management by Mutual Funds. Working
Paper Series. URL: http://ssrn.com/abstract=746926 or http://dx.doi.org/10.2139/ssrn.746926
Poterba, J.M and Shoven, J.B., (2002) Exchange-Traded Funds: A New Investment Option for
Taxable Investors. MIT Department of Economics Working Paper No. 02-07. Available at SSRN:
http://ssrn.com/abstract=302889
Rompotis, G.G., (2009) Interfamily competition on index tracking: The case of the vanguard
ETFs and index funds. The Journal of Asset Management. Vol. 10 Issue 4, p.263-278.
Rompotis, G.G., (2009) Active vs. Passive Management: New Evidence from Exchange Traded
Funds. Working Paper Series. Available at SSRN: http://ssrn.com/abstract=1337708
Rompotis, G.G., (2010) Active Versus Passive ETFs: An Investigation of Bid-Ask Spread. Journal
of Applied Finance Vol. 16 Issue 3, p.5-25.
Schizas, P., (2011) Active ETFs and Their Performance Vis-À-Vis Passive ETFs, Mutual Funds
and Hedge Funds. Working Paper Series. Available at SSRN: http://ssrn.com/abstract=1872125
Spaulding, D,. (2011) Practical issues when calculating Gross and Net-of–Fees Returns. CFA Publications
URL - http://www.cfapubs.org/doi/pdf/10.2469/ipmn.v2011.n1.1
Shankar, S.G., (2007) Active Versus Passive Index Management: A Performance Comparison of
the S&P and the Russell Indexes. The Journal of Investing. Vol. 16 Issue 2, p85-95.
Sharpe, W.F., (1991) The Arithmetic of Active Management. The Financial Analysts Journal. Vol.
47 Issue 1, p7-9.
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25. 24 | P a g e
Appendix
Table 4: Shows the descriptive statistics of the active ETFs with their passive counterpart and the
corresponding benchmark. Includes description, symbol, annual standard deviation, minimum and
maximum values as well as the Sharpe ratio.
Ty
pe Description
Sym
bol
Annu
al
Expec
ted
Retur
n
Med
ian
St.D
ev Min Max
Sharpe
Ratio
Rolling
Sharpe
Ratio
A
Columbia Concentrated Large Cap
Value Strategy Fund
GV
T
12.24
%
0.00
%
17.7
5%
-
10.17
%
11.7
0%
0.6350
3371
0.6026
6218
P
iShares Russell 1000 Value Index
Fund ETF IWD
12.61
%
0.00
%
17.6
7%
-
7.07
%
5.00
%
0.6592
7777
0.6264
6661
B Russell 1000 Index RIY
12.21
%
0.00
%
16.7
8%
-
6.87
%
4.95
%
0.6702
3937
0.6360
2207
A
Columbia Large-Cap Growth Equity
Strategy Fund
RW
G 9.56%
0.00
%
19.2
2%
-
7.86
%
8.89
%
0.4471
6071
0.4242
5536
P
iShares Russell 1000 Growth Index
Fund ETF IWF
12.54
%
0.00
%
16.0
3%
-
6.30
%
4.74
%
0.7220
5517
0.6922
1253
B Russell 1000 Growth RLG
11.72
%
0.00
%
16.1
3%
-
6.44
%
4.69
%
0.6672
0817
0.6381
9366
A
Columbia Growth Equity Strategy
Fund RPX
11.59
%
0.00
%
23.9
6%
-
9.23
%
17.6
0%
0.4435
1413
0.4240
5405
P SPIDER IVV
11.08
%
0.00
%
16.2
9%
-
6.51
%
4.65
%
0.6206
9981
0.5924
8369
B S&P 500 SPX 9.76%
0.00
%
16.4
4%
-
6.66
%
4.74
%
0.5346
7234
0.5077
4579
A PowerShares Active Mega Cap Fund
PM
A 5.74%
0.00
%
23.7
9%
-
9.18
%
9.94
%
0.2007
5042
0.0466
0517
P SPIDER IVV 4.57%
0.00
%
23.6
6%
-
9.84
%
14.5
2%
0.1524
9493
-
0.0003
5955
B S&P 500 SPX 3.15%
0.00
%
23.6
8%
-
9.03
%
11.5
8%
0.0922
9156
-
0.0578
1715
A DENT Tactical ETF
DE
NT
-
0.87%
0.00
%
12.5
3%
-
3.52
%
5.31
%
-
0.1463
813
-
0.1710
3709
P SPIDER IVV 9.65%
0.00
%
16.2
6%
-
6.51
%
4.65
%
0.5342
2173
0.5069
4217
26. 25 | P a g e
B S&P 500 SPX 8.41%
0.00
%
16.4
2%
-
6.66
%
4.74
%
0.4535
6597
0.4275
1564
A
WCM/BNY Mellon Focused Growth
ADR ETF
AA
DR
11.20
%
0.00
%
18.3
6%
-
7.87
%
5.40
%
0.5575
6594
0.5395
7292
P
iShares MSCI EAFE Index Fund
ETF EFA 8.09%
0.00
%
22.0
9%
-
7.47
%
6.74
%
0.3226
3213
0.3093
1043
B MSCI EAFE
MX
EA 4.79%
0.00
%
17.6
0%
-
5.12
%
5.11
%
0.2173
6434
0.2028
1952
A The Active Bear ETF
HD
GE
-
8.33%
0.00
%
21.6
4%
-
4.67
%
6.38
%
-
0.4295
391
-
0.4240
1317
P SPIDER IVV 5.49%
0.00
%
18.6
7%
-
6.51
%
4.65
%
0.2425
48
0.2421
5999
B S&P 500 SPX 4.38%
0.00
%
18.8
6%
-
6.66
%
4.74
%
0.1810
5361
0.1812
1079
Risk free rate: 1 month T-Bill as of
21/02/2012
0.08
% 0.96%
*data collected from the federal
reserve website
Graphs 7-12: Show the normalized returns of the active versus passive ETFs
0
20
40
60
80
100
120
140
160
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Active ETF(GVT)
Passive ETF(IWD)
