The best active ETFs to buy in the US

Susan Dziubinski | Morningstar

Many investors equate exchange-traded funds with indexing. And in fact, the lion’s share of ETF assets rests in passive index strategies. As such, the idea of actively managed ETFs—often clipped to “active ETFs”—may seem unexpected, maybe even counterintuitive.

Yet, many highly respected, successful asset managers—Vanguard, Fidelity, T. Rowe Price, and Capital Group, among them—are launching active ETFs or converting existing actively managed mutual funds into active ETFs.

What Is an Active ETF?

As their name suggests, actively managed ETFs are run by managers or management teams that select securities to buy, as opposed to simply indexing a particular part of the market. Most active strategies seek to generate better risk-adjusted returns over time than their benchmarks.

As a group, actively managed funds haven’t done a very good job of beating their indexes. But some active managers have outperformed, especially when adjusting performance for risk. And in some parts of the market—particularly among non-US stocks and bonds—active management has had an advantage in the longer term.

The Best Active ETFs to Buy Today

Investors interested in adding top active ETFs to their portfolios can begin their search using the Morningstar Medalist Rating. Funds that earn our highest ratings—Silver and Gold—are those that we think are most likely to outperform over a full market cycle.

Here’s the list of the best active ETFs today broken down by the three main asset classes that are represented in many investors’ portfolios: US stocks, international stocks, and bonds. We’re also including a list of what we’re calling “specialized” active ETFs, which feature highly rated active ETFs from investment categories that appear less frequently in the portfolios of most investors.

Best Active ETFs: US Stocks

These active ETFs all landed in one of the broad US stock Morningstar Categories, earned top Medalist Ratings of Silver or Gold, and had an Analyst Assigned % equaling 100% as of Oct. 25, 2024.

1. Avantis U.S. Equity ETF AVUS
2. Avantis U.S. Large Cap Value ETF AVLV
3. Avantis U.S. Small Cap Value ETF AVUV
4. Brandes U.S. Value ETF BUSA
5. Capital Group Dividend Value ETF CGDV
6. Capital Group Growth ETF CGGR
7. Dimensional US Core Equity 1 ETF DCOR
8. Dimensional US Core Equity 2 ETF DFAC
9. Dimensional US Core Equity Market ETF DFAU
10. Dimensional US Large Cap Value ETF DFLV
11. Dimensional US Small Cap ETF DFAS
12. Dimensional US Small Cap Value ETF DFSV
13. Dimensional US Targeted Value ETF DFAT
14. Fidelity Blue Chip Growth ETF FBCG
15. Jensen Quality Growth ETF JGRW
16. JPMorgan Active Value ETF JAVA
17. Neuberger Berman Small-Mid Cap ETF NBSM
18. PGIM Jennison Focused Growth ETF PJFG
19. Putnam Focused Large Cap Value ETF PVAL
20. T. Rowe Price Blue Chip Growth ETF TCHP
21. T. Rowe Price Capital Appreciation Equity TCAF
22. T. Rowe Price Dividend Growth ETF TDVG
23. T. Rowe Price Equity Income ETF TEQI
24. T. Rowe Price Growth Stock ETF TGRW
25. Vanguard US Momentum Factor ETF VFMO
26. Vanguard US Quality Factor VFQY

Although this is a list of the best active ETFs investing in US stocks, there is some variety here. Most of the ETFs on the list favor large-cap stocks, but some prefer value stocks, others lean into growth stocks, and still others blend the two styles. A couple of dividend ETFs make the list, too, as do a few ETFs that invest in smaller-company stocks.

Best Active International-Stock ETFs

These active ETFs all landed in one of the broad international-stock categories, earned top Morningstar Medalist Ratings of Silver or Gold, and had Analyst Assigned % equaling 100% as of Oct. 25, 2024.

1. Avantis International Equity ETF AVDE
2. Dimensional International Core Equity 2 ETF DFIC
3. Dimensional International Core Equity Market ETF DFAI
4. Dimensional International Small Cap Value ETF DISV
5. Dimensional International Small Cap ETF DFIS
6. Dimensional International Value ETF DFIV
7. Dimensional World Equity ETF DFAW
8. Harbor International Compounders ETF OSEA

Here, too, we have another list of the best active ETFs—in this case, focused on international stocks—where there is some variety. Most, but not all, of the ETFs here focus on non-US stocks exclusively, and there are some differences in the market capitalizations of the companies they own and the investment styles they pursue. Consult the ETF’s Analyst Report to clarify.

Best Active Bond ETFs

These ETFs all landed in one of the broad bond categories, earned top Morningstar Medalist Ratings of Silver or Gold, and had Analyst Assigned % equaling 100% as of Oct. 25, 2024.

1. Fidelity Limited Term Bond ETF FLTB
2. Fidelity Total Bond ETF FBND
3. Hartford Sustainable Income ETF HSUN
4. Hartford Total Return Bond ETF HTRB
5. Invesco Total Return Bond ETF GTO
6. iShares Total Return Active ETF BRTR
7. JPMorgan Core Plus Bond ETF JCPB
8. JPMorgan Income ETF JPIE
9. JPMorgan International Bond Opportunities ETF JPIB
10. JPMorgan Limited Duration Bond ETF JPLD
11. JPMorgan Municipal ETF JMUB
12. JPMorgan Ultra-Short Income ETF JPST
13. JPMorgan Ultra-Short Municipal Income ETF JMST
14. PGIM Short Duration Multi-Sector Bond ETF PSDM
15. PGIM Total Return Bond ETF PTRB
16. Pimco Active Bond ETF BOND
17. Pimco Enhanced Short Maturity Active ETF MINT
18. Pimco Enhanced Short Maturity Active ESG ETF EMNT

Several of the best active ETFs on this list land in one of the intermediate-term bond categories. They’d make great choices to anchor the bond portion of an investor’s portfolio, assuming the goals for the money are six or more years away. Those saving for a shorter-term goal in the next three to five years might consider short-term bond funds instead. Those investors with longer time horizons might consider a multisector or nontraditional bond fund—but they should also be prepared for the enhanced volatility that comes with investing in these bond types. Those in high income tax brackets can consider the ETFs from the list focused on municipal bonds, too.

Top Active ETFs: Specialized

These ETFs all landed in one of the specialized stock or bond categories, earned top Morningstar Medalist Ratings of Silver or Gold, and had Analyst Assigned % equaling 100% as of Oct. 25, 2024.

1. Davis Select Financial ETF DFNL
2. Dimensional US Real Estate ETF DFAR
3. T. Rowe Price Floating Rate ETF TFLR

The top-rated active ETFs on this list are good choices for investors looking to fill more-niche roles in their portfolios.

Active ETFs: Pros and Cons

What are some of the advantages of investing in an active ETF versus investing in an actively managed mutual fund instead?

• ETFs are more tax-efficient than mutual funds. Because an ETF can send securities out of its portfolio in kind to meet redemptions while mutual funds can’t, ETFs tend to be more tax-efficient by their very nature.
• ETFs tend to cost less than mutual funds. Some of the costs of owning a mutual fund—such as expenses around advice, recordkeeping, and distribution—don’t exist or are substantially lower with ETFs.
• ETFs require less upfront investment. Unlike mutual funds that typically have minimum dollar amounts that an investor needs to invest, investors can buy just one share of an ETF.

However, there is one significant “con” to investing in active ETFs: ETF managers can’t manage capacity. Unlike mutual funds that can close to new investment if assets flood in and jeopardize their managers’ ability to invest according to their strategies, ETFs can’t close to new investment. As a result, managers practicing concentrated strategies or those investing in less liquid markets may have to compromise their strategies in the face of sizable inflows.
 

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