Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 255

How do Active ETFs and managed funds differ?

Active Exchange Traded Funds (Active ETFs) and managed funds share many similarities, but there are important differences. With a rise in the popularity of ETFs and the introduction of more Active ETFs, the differences between the two actively managed investment options are important considerations for investors.

The similarities between Active ETFs and managed funds include:

  • Active management: The investment manager is attempting to beat an index or benchmark.
  • Open-ended nature creates liquidity (the ease of buying and selling): The fund regularly creates and redeems units, typically daily, depending on supply and demand.
  • Diversification: Investors receive a portfolio of securities in one investment.
  • Regulated trust structure: They are both subject to the same regulatory protections.
  • Limited disclosure: Active ETFs disclose portfolio holdings quarterly while managed funds are not required to disclose, but usually provide top 10 holdings.

Investing in a managed fund

Managed funds are not bought like shares on the stock exchange and investors only know their entry or exit price on a T+1 basis (T+1 means settlement occurs the next day. A unit bought on Monday would settle on Tuesday). The two main ways to invest in a managed funds are:

  • Via a platform (also known as a ‘wrap’), which generally requires investors to pay a platform administration fee.
  • Direct with the fund, which requires investors to fill out forms directly with the fund manager to buy and sell units.

Investing in an Active ETF

Active ETFs, however, are traded on the stock exchange:

  • Units can be bought and sold like shares using a broker.
  • Investors can trade at live prices during the day.
  • Units generally trade at a tight spread around the Active ETF’s net asset value (NAV).

Exchange trading creates a number of benefits:

  • Ease of use: Active ETFs do not require time-consuming forms to buy units (although for some managed funds and through some brokers, ASX’s mFund service usually reduces this workload).
  • Portfolio management: Active ETF units are held alongside shares and ETFs in a broker account making record keeping and tax time easier. Dividends and income are also paid into the same account as shares and ETFs.
  • Generally lower cost: While investors pay a brokerage fee to buy Active ETFs, they avoid platform administration fees and higher fees often charged when investing in managed funds.

However, there are risks that need to be considered:

  • Liquidity: Although the units are quoted on the AQUA market of the ASX, there can be no assurance that there will be a liquid market for units, and no assurance that there will be a liquid market for the fund’s underlying investments. In certain circumstances, the ASX may even suspend trading of an Active ETF.
  • ASX trading price: The trading price of units on the ASX may differ from the NAV per unit and the indicative NAV (iNAV).
  • Market making: As the responsible entity intends to act as a market maker in the units on behalf of the Active ETF, the fund bears the cost and risk of these market-making activities.

When making any investment decision, it pays to explore the alternative features.

 

Paul Gambale is a Product Director at AMP Capital, a sponsor of Cuffelinks. This article is general information and does not consider the circumstances of any investor.

RELATED ARTICLES

Four ways to invest in the same fund and save money

Active ETFs are a great Aussie invention

Active or passive ETFs: how do you decide?

banner

Most viewed in recent weeks

What to expect from the Australian property market in 2025

The housing market was subdued in 2024, and pessimism abounds as we start the new year. 2025 is likely to be a tale of two halves, with interest rate cuts fuelling a resurgence in buyer demand in the second half of the year.

The perfect portfolio for the next decade

This examines the performance of key asset classes and sub-sectors in 2024 and over longer timeframes, and the lessons that can be drawn for constructing an investment portfolio for the next decade.

Howard Marks warns of market froth

The renowned investor has penned his first investor letter for 2025 and it’s a ripper. He runs through what bubbles are, which ones he’s experienced, and whether today’s markets qualify as the third major bubble of this century.

2025: Another bullish year ahead for equities?

2024 was a banner year for equities, with a run-up in US tech stocks broadening into a global market rally, and the big question now is whether the good times can continue? History suggests optimism is warranted.

The 20 most popular articles of 2024

Check out the most-read Firstlinks articles from 2024. From '16 ASX stocks to buy and hold forever', to 'The best strategy to build income for life', and 'Where baby boomer wealth will end up', there's something for all.

The challenges with building a dividend portfolio

Getting regular, growing income from stocks is tougher with the dividend yield on the ASX nearing 25-year lows. Here are some conventional and not-so-conventional ideas for investors wanting to build a dividend portfolio.

Latest Updates

Retirement

Retirement is a risky business for most people

While encouraging people to draw down on their accumulated wealth in retirement might be good public policy, several million retirees disagree because they are purposefully conserving that capital. It’s time for a different approach.

Investment strategies

Why ASX miners will handily beat banks in the long-term

After a stellar run for banks, investors are wondering whether they can continue their outperformance or if a rotation into miners is imminent. There’s a good case that a switch is coming, and it may last decades, not just years.

Investment strategies

After DeepSeek, what's next for the big US tech companies?

DeepSeek has surprised investors, but it shouldn't: it's part of a normal capital cycle. Big tech companies have made a lot of money, which attracts capital and competition, and eventually hurts returns and incumbent share prices.

Economy

The case for Australian AI

If Australia is to control its own destiny in an AI-enabled future, it must build its own infrastructure, not rent it from overseas. Creating homemade AI is the first critical step in the long process of building Australia's AI economy.

How Nextflix is staying ahead of the competition

The TV streaming business has become increasingly competitive, yet Netflix has managed to grow market share and become the dominant player. Here's how it's done that, and the opportunities it has moving forwards.

Investment strategies

The million-dollar banana and the power of story

Markets are not driven by numbers alone. Examples from Tesla shares to Sydney houses show that investors must evaluate not just tangible assets or financials, but also the intangible story that magnifies their value.

Retirement

An alternative asset class for income-seeking retirees

A big market sell-off can force pensioners to 'sell cheap' in order to meet their miniumum withdrawal requirements. Investing in less volatile assets that also deliver regular income could provide an alternative.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.