Which type of ETFs is likely to see a change in portfolio composition on a daily basis?

Which type of ETFs is likely to see a change in portfolio composition on a daily basis?

• A. Passive ETFs
• B. Index ETFs
• C. Actively Managed ETFs
• D. Sector ETFs

Answer: (C)

Actively managed ETFs are designed to be responsive to changing market conditions, which leads to frequent adjustments in their portfolio composition. Fund managers actively buy and sell securities to exploit perceived market inefficiencies or to respond to macroeconomic or sector trends. This dynamic approach allows them to adapt their holdings on a daily basis as they seek to enhance returns or manage risk. In contrast, passive ETFs and index ETFs typically aim to replicate the performance of a specific index, which means they maintain a relatively stable portfolio that only changes at set intervals, typically when the underlying index rebalances. Sector ETFs may focus on specific industry sectors but do not inherently imply an active management approach, potentially resulting in a more static composition than actively managed ETFs. The active management strategy is what fundamentally sets actively managed ETFs apart, as they do not have a predetermined structure like the others, leading to the frequent reallocation of assets within the fund.

Actively managed ETFs are designed to be responsive to changing market conditions, which leads to frequent adjustments in their portfolio composition. Fund managers actively buy and sell securities to exploit perceived market inefficiencies or to respond to macroeconomic or sector trends. This dynamic approach allows them to adapt their holdings on a daily basis as they seek to enhance returns or manage risk.

In contrast, passive ETFs and index ETFs typically aim to replicate the performance of a specific index, which means they maintain a relatively stable portfolio that only changes at set intervals, typically when the underlying index rebalances. Sector ETFs may focus on specific industry sectors but do not inherently imply an active management approach, potentially resulting in a more static composition than actively managed ETFs.

The active management strategy is what fundamentally sets actively managed ETFs apart, as they do not have a predetermined structure like the others, leading to the frequent reallocation of assets within the fund.