ETFs are commonly passive instruments in the sense that they aim to track the performance of an underlying market capitalisation weighted index. Passive ETFs have grown over the past 12 months to a FUM greater than $48bn and this style of ETFs continue to see the greatest net inflows each month. More recently there has been a rise in ‘Smart Beta’ ETFs, which employ rules based strategies to indices. This provides a blend of active and passive investments that tend to focus on factors that seek to add value beyond the traditional index exposure. An Active ETF is similar to an ETF with an active manager that seeks to outperform a relevant benchmark over the investment time frame.
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