Exchange-traded funds (ETFs) have been popular global investment instrument over the past 30 years.
As the name suggests, ETFs are pooled investment securities that can be bought or sold through a brokerage or an exchange, as is the case for do-it-yourself investors.
They are akin to mutual funds but with superior advantages. They are more tax-efficient and offer trading flexibility while providing portfolio diversification and risk management.
The ETF industry was predominantly perceived as synonymous with plain vanilla index investing until 2008. However, active management has garnered traction in recent years.
Passive ETFs
Passive ETFs are long-term investments that track the performance of an underlying index, sector, or asset class.
As a result, they have a lower expense ratio and lower trading costs because investors do not need to adjust their portfolios frequently.
They are a stable way for investors to quickly achieve their desired risk profile with the index or sector of their choice.
Passive ETFs replicate the holdings of the underlying index – based on clear and sound principles.
Compared to investments such as active ETFs and mutual funds, passive ETFs generate less capital gains distribution, have a lower portfolio turnover and tend to use in-kind redemptions to avoid selling securities at a gain.
Passive ETFs are less flexible because investors cannot make custom changes to their portfolio or adopt defensive strategies if market risk intensifies. This makes it challenging to capture lucrative opportunities or adopt protective measures during a market downturn.
Active ETFs
Instead of tracking an index, it aims to outperform a benchmark by virtue of active selection and management of constituent securities.
Implementing discretionary strategies that modify exposure to asset classes based on the ever-evolving macroeconomic conditions has enabled asset managers to capitalise on market inefficiencies and mispriced securities to deliver higher returns over time.
On average, active ETFs have a higher annual expense ratio of 0.57 per cent relative to an average of 0.26 per cent for passive ETFs.
This is directed towards conducting comprehensive research and due diligence to generate higher risk-adjusted returns and perform active risk management.
Active ETF managers are bound by law to provide daily disclosures to investors.
While this ensures higher transparency, it hinders an active manager’s ability to adjust holdings and implement investment strategies, some of which could be proprietary, without the risk of giving away their edge to competitors and other traders in the market.
Active ETFs do not necessarily outperform their passively managed counterparts or the underlying index by default. A large portion of the outperformance is dependent on the skill of the asset manager in question.
Active ETFs do not necessarily yield higher returns than their passively managed counterparts by default
Vijay Valecha,
chief investment officer at Century Financial
They are gaining in popularity among investors, particularly in volatile and uncertain market conditions such as those that prevailed for a significant part of 2022.
In such instances, some investors might be inclined to trust a qualified professional with a proven track record to manage their investments for a fee rather than managing risk themselves.
This grants investors access to sophisticated research and trading strategies that may give them an edge over passive investors.
ETF inflows surged to $40 billion in January 2023 alone – nearly double that month’s historical average.
Analysts are projecting active ETFs to gain traction and deliver outsized growth in 2023.
Nevertheless, active ETFs do not necessarily yield higher returns than their passively managed counterparts by default.
This is evident from the mixed performance of dollar-denominated ETFs over the past five years.
For instance, active ETFs fared better in the fixed-income and value equity categories, while passive ETFs emerged victorious over their functional counterparts in specific classes like large-cap and growth equities.
Nevertheless, 31 per cent of actively managed ETFs have outperformed the market so far this year. By comparison, 58 per cent of active ETFs outperformed the market in 2022.
Vijay Valecha is the chief investment officer at Century Financial
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Strait of Hormuz
Fujairah is a crucial hub for fuel storage and is just outside the Strait of Hormuz, a vital shipping route linking Middle East oil producers to markets in Asia, Europe, North America and beyond.
The strait is 33 km wide at its narrowest point, but the shipping lane is just three km wide in either direction. Almost a fifth of oil consumed across the world passes through the strait.
Iran has repeatedly threatened to close the strait, a move that would risk inviting geopolitical and economic turmoil.
Last month, Iran issued a new warning that it would block the strait, if it was prevented from using the waterway following a US decision to end exemptions from sanctions for major Iranian oil importers.
Jetour T1 specs
Engine: 2-litre turbocharged
Power: 254hp
Torque: 390Nm
Price: From Dh126,000
Available: Now
More from Rashmee Roshan Lall
Defending champions
World Series: South Africa
Women’s World Series: Australia
Gulf Men’s League: Dubai Exiles
Gulf Men’s Social: Mediclinic Barrelhouse Warriors
Gulf Vets: Jebel Ali Dragons Veterans
Gulf Women: Dubai Sports City Eagles
Gulf Under 19: British School Al Khubairat
Gulf Under 19 Girls: Dubai Exiles
UAE National Schools: Al Safa School
International Invitational: Speranza 22
International Vets: Joining Jack
AGL AWARDS
Golden Ball - best Emirati player: Khalfan Mubarak (Al Jazira)
Golden Ball - best foreign player: Igor Coronado (Sharjah)
Golden Glove - best goalkeeper: Adel Al Hosani (Sharjah)
Best Coach - the leader: Abdulaziz Al Anbari (Sharjah)
Fans' Player of the Year: Driss Fetouhi (Dibba)
Golden Boy - best young player: Ali Saleh (Al Wasl)
Best Fans of the Year: Sharjah
Goal of the Year: Michael Ortega (Baniyas)
Did you know?
Brunch has been around, is some form or another, for more than a century. The word was first mentioned in print in an 1895 edition of Hunter’s Weekly, after making the rounds among university students in Britain. The article, entitled Brunch: A Plea, argued the case for a later, more sociable weekend meal. “By eliminating the need to get up early on Sunday, brunch would make life brighter for Saturday night carousers. It would promote human happiness in other ways as well,” the piece read. “It is talk-compelling. It puts you in a good temper, it makes you satisfied with yourself and your fellow beings, it sweeps away the worries and cobwebs of the week.” More than 100 years later, author Guy Beringer’s words still ring true, especially in the UAE, where brunches are often used to mark special, sociable occasions.
Is it worth it? We put cheesecake frap to the test.
The verdict from the nutritionists is damning. But does a cheesecake frappuccino taste good enough to merit the indulgence?
My advice is to only go there if you have unusually sweet tooth. I like my puddings, but this was a bit much even for me. The first hit is a winner, but it's downhill, slowly, from there. Each sip is a little less satisfying than the last, and maybe it was just all that sugar, but it isn't long before the rush is replaced by a creeping remorse. And half of the thing is still left.
The caramel version is far superior to the blueberry, too. If someone put a full caramel cheesecake through a liquidiser and scooped out the contents, it would probably taste something like this. Blueberry, on the other hand, has more of an artificial taste. It's like someone has tried to invent this drink in a lab, and while early results were promising, they're still in the testing phase. It isn't terrible, but something isn't quite right either.
So if you want an experience, go for a small, and opt for the caramel. But if you want a cheesecake, it's probably more satisfying, and not quite as unhealthy, to just order the real thing.
Which honey takes your fancy?
Al Ghaf Honey
The Al Ghaf tree is a local desert tree which bears the harsh summers with drought and high temperatures. From the rich flowers, bees that pollinate this tree can produce delicious red colour honey in June and July each year
Sidr Honey
The Sidr tree is an evergreen tree with long and strong forked branches. The blossom from this tree is called Yabyab, which provides rich food for bees to produce honey in October and November. This honey is the most expensive, but tastiest
Samar Honey
The Samar tree trunk, leaves and blossom contains Barm which is the secret of healing. You can enjoy the best types of honey from this tree every year in May and June. It is an historical witness to the life of the Emirati nation which represents the harsh desert and mountain environments
UAE currency: the story behind the money in your pockets
The specs
Engine: 2.0-litre 4cyl turbo
Power: 261hp at 5,500rpm
Torque: 405Nm at 1,750-3,500rpm
Transmission: 9-speed auto
Fuel consumption: 6.9L/100km
On sale: Now
Price: From Dh117,059
Bundesliga fixtures
Saturday, May 16 (kick-offs UAE time)
Borussia Dortmund v Schalke (4.30pm)
RB Leipzig v Freiburg (4.30pm)
Hoffenheim v Hertha Berlin (4.30pm)
Fortuna Dusseldorf v Paderborn (4.30pm)
Augsburg v Wolfsburg (4.30pm)
Eintracht Frankfurt v Borussia Monchengladbach (7.30pm)
Sunday, May 17
Cologne v Mainz (4.30pm),
Union Berlin v Bayern Munich (7pm)
Monday, May 18
Werder Bremen v Bayer Leverkusen (9.30pm)
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UAE currency: the story behind the money in your pockets
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What the law says
Micro-retirement is not a recognised concept or employment status under Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations (as amended) (UAE Labour Law). As such, it reflects a voluntary work-life balance practice, rather than a recognised legal employment category, according to Dilini Loku, senior associate for law firm Gateley Middle East.
“Some companies may offer formal sabbatical policies or career break programmes; however, beyond such arrangements, there is no automatic right or statutory entitlement to extended breaks,” she explains.
“Any leave taken beyond statutory entitlements, such as annual leave, is typically regarded as unpaid leave in accordance with Article 33 of the UAE Labour Law. While employees may legally take unpaid leave, such requests are subject to the employer’s discretion and require approval.”
If an employee resigns to pursue micro-retirement, the employment contract is terminated, and the employer is under no legal obligation to rehire the employee in the future unless specific contractual agreements are in place (such as return-to-work arrangements), which are generally uncommon, Ms Loku adds.
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
GOLF’S RAHMBO
- 5 wins in 22 months as pro
- Three wins in past 10 starts
- 45 pro starts worldwide: 5 wins, 17 top 5s
- Ranked 551th in world on debut, now No 4 (was No 2 earlier this year)
- 5th player in last 30 years to win 3 European Tour and 2 PGA Tour titles before age 24 (Woods, Garcia, McIlroy, Spieth)
