Envestnet’s New ETFs Blend Active, Passive Strategies

The four funds aim to allow easy access to the fintech services firm’s model portfolios.

Fintech services firm Envestnet Inc. launched its first exchange-traded funds, a suite of four ETFs that have part of their assets passively managed and part actively managed. 

Calling its strategy “ActivePassive,” Berwyn, Pennsylvania-based Envestnet launched the ActivePassive U.S. Equity ETF (APUE), the ActivePassive International Equity ETF (APIE), the ActivePassive Core Bond ETF (APCB) and the ActivePassive Intermediate Municipal Bond ETF (APMU). Fees range from 0.33% for APUE and 0.45% for APIE, less than the 0.69% average for actively managed ETFs.  

Envestnet is seeking to “provide investors with a single portfolio that marries the best attributes of both active and passive investing at a low cost," Co-Chief Investment Officer Dana D'Auria said in a statement. She referred to Envestnet as “pioneers bringing together active and passive investment styles.” 

The company says it provides fintech services to over 106,000 financial advisors, and has about $15 billion invested in its so-called model portfolios, part of which use the ActivePassive technique.  

Most actively managed funds fail to provide returns that make up for their fees compared to index funds. Brooks Friederich, principal director of investments solutions strategy at Envestnet’s asset management unit Envestnet|PMC, said some asset classes are more conducive to active management than others, allowing better opportunities to pick winners. 

Friederich said in an interview that the percent of assets invested in each side of the ActivePassive strategy will vary over time, depending on Envestnet’s research and market conditions. The active portion of the strategy employs both quantitative smart-beta-type management and more traditional active management that will be handled by subadvisors.  

He said Envestnet research shows that international value stocks, emerging markets and small cap value and growth stocks all provide particular opportunities for stock picking because they are comparably ill-covered by analysts. “Core bond and large cap U.S. stocks are very efficient asset classes,” and so clients are better served using passive management, he noted. 

Investors will need to weigh whether the convenience of investing in a single fund outweighs the additional fees charged by these portfolios.  

Contact Gabe Alpert at [email protected]