Most ETFs are passive — they track an index and automatically hold the same securities in the same proportions as the index. But a growing number of ETFs listed on the ASX are actively managed — a fund manager selects the securities and makes ongoing decisions about what to buy and sell. Understanding the difference helps you choose the right investment approach.
Passive ETFs (Index ETFs)
A passive ETF tracks a pre-defined index. The fund buys all (or a representative sample) of the securities in the index, in the same proportions, and rebalances when the index changes.
Examples of passive ASX-listed ETFs:
- VAS — tracks the S&P/ASX 300 index
- A200 — tracks the Solactive Australia 200 index
- VGS — tracks the MSCI World ex-Australia index
- NDQ — tracks the NASDAQ-100 index
- IVV — tracks the S&P 500 index
Characteristics:
- No active stock selection — the index rules decide what is held
- Low portfolio turnover — securities only change when the index changes
- Very low fees — typically 0.04%–0.25% per year
- Transparent — holdings published daily, closely mirror the index
- Return = index return minus MER (very predictable)
Active ETFs
An actively managed ETF is managed by a fund manager who selects securities based on their own analysis and investment process — just like a traditional managed fund. The key difference from a traditional managed fund is that active ETFs trade on the ASX like shares rather than being redeemed through the manager.
Examples of active ASX-listed ETFs:
- MOAT (VanEck Morningstar Wide Moat ETF) — selects companies with durable competitive advantages
- QUAL (VanEck MSCI World Quality ETF) — screens for high-quality global companies
- CLDD (BetaShares Cloud Computing ETF) — active selection within cloud computing
- FUTR (BetaShares Future Quality ETF) — quality-focused active strategy
Characteristics:
- Portfolio manager makes buy/sell decisions
- Higher portfolio turnover — more frequent trading
- Higher fees — typically 0.35%–1.25%+ per year
- Less predictable returns — can outperform or underperform the index
- Holdings may be less transparent (some active ETFs disclose holdings with a lag)
Fee Comparison
| ETF type | Typical MER range | Examples |
|---|---|---|
| Passive (broad index) | 0.04%–0.20% | VAS 0.07%, A200 0.04%, VGS 0.18% |
| Passive (thematic/sector) | 0.20%–0.55% | NDQ 0.48%, VHY 0.25% |
| Active ETF | 0.35%–1.25%+ | MOAT 0.49%, FUTR 0.40% |
“Smart Beta” — The Middle Ground
Between pure passive and pure active sits “smart beta” — ETFs that track indices constructed using factors (value, quality, momentum, low volatility) rather than pure market-cap weighting.
Examples:
- MVW (VanEck Australian Equal Weight ETF) — holds ASX companies at equal weights rather than by market cap
- HVST (BetaShares Australian Dividend Harvester) — systematic dividend capture strategy
- QUAL (VanEck MSCI World Quality ETF) — screens for quality factors within the MSCI World universe
Smart beta ETFs typically cost more than pure index ETFs (0.25%–0.60%) but less than fully active funds.
Does Active ETF Management Outperform?
The evidence on active management — whether in ETF or managed fund form — is mixed at best. The S&P SPIVA data shows most actively managed Australian equity funds underperform their benchmark after fees over 10+ year periods. However:
- Some active strategies (quality, low-volatility factors) have demonstrated reasonable long-term evidence
- Active ETFs in niche areas (specific sectors, emerging markets) may offer expertise not easily replicated by a market-cap index
- Active ETF performance should be evaluated over meaningful periods (5–10 years minimum), not short-term results
Related Articles
- What Is an ETF?
- ETF MER Explained
- ETFs vs Managed Funds
- Active vs Passive Investing
- ETFs hub
- Investing hub
Frequently Asked Questions
Are all ETFs passive? No. While most ETFs by assets under management are passive index funds, the number of active ETFs listed on the ASX has grown significantly. Always check whether an ETF you are considering is passive (tracking a specific index) or actively managed — and compare the MER accordingly.
Is a smart beta ETF passive or active? Smart beta ETFs follow a rules-based index (which makes them technically passive), but the index itself is designed using factors rather than simple market-cap weighting. They are sometimes called “systematic” or “factor” strategies. They are generally cheaper than active ETFs but more expensive than pure market-cap index ETFs.
If I want to beat the market, should I choose an active ETF? Active ETFs (and active funds generally) aim to outperform their benchmark, but most fail to do so consistently after fees over long periods — according to independent data from S&P SPIVA and other sources. Selecting an active ETF because you hope it will “beat the market” requires confidence in the manager’s skill — which is difficult to assess in advance. Most financial education resources (ASIC MoneySmart, Vanguard research) emphasise that low-cost index investing is the most reliable approach for most retail investors over the long term.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.