At Best ETFs we categorise active ETFs, managed funds, index funds, rules-based ETFs and hedge fund ETFs separately given their unique risks, potential, costs and exposure.
Active ETFs are a separate type of ETF compared to index ETFs. Active ETFs use human oversight, opinion, research and input to make a decision on which investments to buy or sell.
Index ETFs/funds have a standard set of rules they follow (e.g. they follow a market capitalisation index).
“Rules-based ETFs” (e.g. value ETFs or income-focused ETFs) also follow rules. However, they are not standard rules. They use a mixture of different mathematical formulas to create a portfolio inside the ETF. For example, they might create an ETF which only buy shares with high dividend yields. We categorise these ETFs separately to active ETFs, index funds and hedge fund ETFs.
We have a separate category for hedge funds ETFs. We categorise ETFs and funds as “hedge funds” if they use shorting, derivatives (other than for hedging currencies), trading strategies or leverage.
