Active ETFs and Their Performance Vis-À-Vis Passive ETFs, Mutual Funds and Hedge Funds

Abstract

I present empirical results on the first active exchange traded funds (ETFs) based on risk, return and incentives. Using models for both the returns and the volatility of the underlying assets, I compare the performance of the suggested models with the alternative investment solutions such as passive ETFs, mutual funds and hedge funds. The results indicate that active ETFs are found to be more volatile than passive ETFs and overall the active and passive structure is very close in means of final performance. I also find that, in many cases, the active structure is surpassing mutual funds in mean of returns. Finally, there is a unidirectional relation between active funds and hedge funds, since the former is influenced by the latter.

Keywords: Active ETFs, Passive ETFs, Mutual Funds, Hedge Funds

JEL Classification: C58, G11, G15