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  • Writer's pictureBespoke Financial Advice

Streamlining Portfolio Operations with Active ETFs: Best Practices for 2024

The rapidly evolving financial landscape has given rise to a multitude of strategies aimed at optimising portfolio performance and reducing risk. One such strategy is the utilisation of active exchange-traded funds (ETFs). This article delves into how active ETFs can be leveraged to mitigate risk and enhance clients’ portfolio performance.


Active ETFs represent an innovative approach to investment, combining the benefits of traditional ETFs—such as transparency, liquidity, and tax efficiency—with the advantages of active management. These include the ability to adapt to changing market conditions, mitigate risk, and potentially outperform passive benchmarks.


The Market Dominance Conundrum


A growing concern is the increasing concentration of passive equity allocations in a handful of dominant stocks. For instance, the so-called “Magnificent Seven” (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla) have a significant influence on the overall market performance. This raises questions about the potential risk associated with such concentrated portfolios.


Active ETFs as a Solution


Active ETFs provide a solution to this concentration risk. Fund managers manage active ETFs, which differ from passive ETFs, by adjusting investments based on the performance of individual companies. This means they can potentially avoid the pitfalls associated with over-concentration in a few dominant stocks.


The Rising Popularity of Active ETFs


The appeal of active ETFs is gaining momentum. Active ETFs accounted for 22% of all ETF inflows in 2023. This trend underscores the growing demand for active management within ETFs, particularly among our clients who are seeking flexibility and risk mitigation.


Long-term Goal Orientation


A key benefit of active ETFs is their focus on long-term financial goals. The flexibility inherent in active management allows us to adjust to changing market conditions while keeping sight of long-term objectives. This approach aligns well with the financial planning needs of our clients, who are generally more concerned with achieving their long-term financial goals than short-term market performance.


Custom Portfolios and Active ETFs


Active ETFs offer the opportunity to construct custom portfolios tailored to the unique investment objectives of each client. These portfolios can be designed to aim for growth, moderate growth and income, or conservative income for retirement. Active ETFs’ flexibility allows these portfolios to adjust to shifting market conditions while maintaining a focus on long-term objectives.



By integrating active ETFs into our custom portfolios, we were able to mitigate concentration risk, streamline our operations, and spend more time with our clients.


Conclusion


Active ETFs represent a promising solution for clients seeking to mitigate risk and focus on their long-term goals. As their popularity continues to grow, it is likely that they will play an increasingly prominent role in portfolio management strategies.


Connect with Us

Interested in adopting a more flexible, active approach to your portfolio? Connect with Bespoke Financial Advice today for an in-depth portfolio analysis and review.

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