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13 Must-Read Investing Books

How to Find the Right Active ETF for Your Portfolio

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However, smaller markets are most prone to capacity risk. Concentrated portfolios of small-cap or emerging-markets stocks are not ideal for an ETF. But active managers have the most alpha potential in these types of markets because of their inefficiencies and informational asymmetries.
The article from Morningstar discusses the process of selecting the right active ETF for an investor's portfolio. It highlights that active ETFs, which are managed by professionals aiming to outperform a benchmark, offer potential advantages like lower costs, tax efficiency, and transparency compared to traditional mutual funds. Key considerations include understanding the fund's strategy, the manager's track record, and the fund's performance metrics like alpha, beta, and standard deviation. The article advises investors to look for ETFs with experienced managers, a clear investment process, and a history of navigating various market conditions effectively. Additionally, it emphasizes the importance of aligning the ETF's investment style with one's investment goals, risk tolerance, and the need for diversification. The piece also touches on the importance of cost, suggesting that while active ETFs can be more expensive than passive ones, the potential for alpha generation might justify the higher fees if the fund consistently performs well.

Read the Full Morningstar Article at:
[ https://www.morningstar.com/funds/how-find-right-active-etf-your-portfolio ]