Are “Active” ETFs Ever Worth the Higher Fee?

No fee is great, but when it comes to these ETFs, the fee is worth the investment for high growth as well as high dividends.

| More on:
exchange traded funds

Image source: Getty Images

When exchange-traded funds (ETF) were first introduced, every investor was excited to get on board. However, that excitement started to fade when investors looked at the higher management expense ratios. While less than mutual funds, ETFs could still have a price tag attached.

This is why passively managed ETFs became so popular. Instead of having a team of portfolio managers on board, an ETF could simply track an index. But that doesn’t mean those actively managed ETFs disappeared.

In fact, there are some actively managed ETFs that remain a solid buy, even with a higher management expense ratio (MER). So, let’s look at three examples and why Canadian investors may want to consider them for their portfolio.

Dynamic Active Canadian Dividend ETF

First up, we have Dynamic Active Canadian Dividend ETF (TSX:DXC). DXC ETF is an actively managed ETF focused on generating income through dividends and modest, long-term capital growth.

The current MER is at 0.84%, which is higher compared to passive ETFs. DXC ETF invests primarily in Canadian companies with a history of strong dividend payments. The fund managers actively select stocks that they believe will offer high dividend yields and potential for capital appreciation.

Right now, the ETF’s portfolio is diversified across various sectors, with significant allocations typically in financial services, energy, and industrials, which are sectors known for high dividend yields. The fund may also include investments in other sectors to balance risk and capitalize on market opportunities.

This ETF is suitable for investors seeking a combination of income and growth, particularly those looking for exposure to high dividend-paying Canadian companies. It is ideal for long-term investors who can tolerate the risks associated with active management and sector concentration. Shares are currently up 4.48% year to date, with a current yield of 2.55%.

Global X Active Canadian Dividend ETF Common

Next up, we have Global X Active Canadian Dividend ETF Common (TSX:HAL), another actively managed fund focused on dividends. It’s designed to provide long-term total returns through regular dividend income and modest long-term capital growth. The ETF currently holds a MER of 0.68%.

The HAL ETF focuses on investing primarily in equity securities of major North American companies with above-average dividend yields. The active management approach allows for flexibility in adjusting holdings to optimize performance and manage risk. Right now, it holds about 25% in energy, 25% in finances, and 13% in real estate.

The ETF aims to provide regular dividend income along with the potential for modest capital appreciation. The performance can vary based on the underlying securities’ performance and market conditions. As of writing, shares are up 6.9% year to date, with a 3.47% dividend yield as well.

CI Morningstar Canada Value Index ETF Common

Finally, we have CI Morningstar Canada Value Index ETF Common (TSX:FXM), with a current MER of 0.66%. Here, we’re moving away from dividends with a focus on value. FXM ETF is an actively managed ETF that focuses on value investing by targeting undervalued Canadian companies.

The ETF tracks the Morningstar Canada Target Value Index, which focuses on Canadian companies that are considered undervalued based on fundamental analysis. The goal is to invest in stocks with strong potential for appreciation. The fund managers actively select stocks that are believed to be trading below their intrinsic value, aiming for capital growth over the long term.

It includes a diversified portfolio of Canadian companies across various sectors. The fund is rebalanced periodically to ensure it continues to align with the value investing strategy. The FXM ETF currently holds a 2.9% yield, with shares up 9% year to date as of writing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Stocks for Beginners

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

This Dividend Stock Just Jumped 10%! Time to Buy?

This dividend stock is way up after being included in a major index, making it a prime time to pick…

Read more »

Pile of Canadian dollar bills in various denominations
Stocks for Beginners

Up 94% in 2024! 3 Reasons Celestica Stock Is (Still) a Screaming Buy Today

Here are the top three reasons that could help Celestica stock continue soaring in the long run.

Read more »

sale discount best price
Stocks for Beginners

Time to Pounce: 1 Phenomenal TSX Stock That Hasn’t Been This Cheap in a While 

Buying the dip of a phenomenal cyclical stock could generate fantastic returns. Here is a cheap TSX stock in its…

Read more »

financial freedom sign
Stocks for Beginners

Could This Undervalued Stock Make You a Millionaire One Day? 

The TSX has good millionaire-maker stocks if you wait. This futuristic stock might look undervalued once you see its growth…

Read more »

Aerial view of a wind farm
Energy Stocks

Brookfield Renewable Stock Climbs Higher: Time to Buy?

Brookfield Renewable stock (TSX:BEP.UN) continues to climb, but remains below the $40 mark. But that share price looks in view.

Read more »

Automated vehicles
Stocks for Beginners

Why Shares of Boyd Stock Flew Higher This Week

Boyd stock (TSX:BYD) has been rising higher on the back of improving credit and higher analyst ratings, so it could…

Read more »

Woman has an idea
Stocks for Beginners

Hot Stocks for a Hot Month: Best TSX Stocks to Buy in June 2024

As summer approaches and interest rates decline, you might want to consider adding these two hot TSX stocks to your…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Stocks for Beginners

How to Turn Your TFSA Into a Gold Mine Starting With $10,000 

What is the worth of $10,000? If you spend it today, it is worth $10,000. However, if you invest it…

Read more »