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Active ETFs need tweaking

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Active exchange-traded funds may be on the horizon; PowerShares has approached the SEC with a proposal for a group of active ETFs, the first firm to do so. According to Morningstar’s Sonya Morris though, the funds may not be all they’re cracked up to be.

None of these funds will track an index; two of them will include the 50 highest-rated stocks, as determined by a computer model, and can make up to three trades a day on the last business day of the week. The third will reference a model, but allow for management to use derivatives or hold cash occasionally. Holdings will be published daily, but managers can trade at any time, which may lead to a discrepancy between the published holdings and the portfolio.