Warren Buffett recommends low-cost S&P 500 index funds for most people, cynically pointing out that “people will try and sell you other things because there’s more money in it for them if they do.” While it’s true most active funds underperform the market, Buffett himself is an example of how some active managers can consistently outperform.
And he’s not alone.
In this article, we’ll look at a handful of active ETFs that have consistently outperformed the market and explore whether they are the right fit for your portfolio.
Top Active ETFs
Here are some of the top-performing active ETFs, sorted by their YTD total return, which ranges from 3.9% to 17.1%. They have AUM between $1.99B and $6.71B and expenses running between 0.15% and 0.58%. They are currently yielding between 1.3% and 5%.
| Name | Ticker | Type | Actively Managed? | AUM | YTD Total Ret (%) | Yield | Expense |
|---|---|---|---|---|---|---|---|
| Dimensional US High Profitability ETF | DUHP | ETF | Yes | $4.77B | 17.1% | 1.3% | 0.22% |
| Avantis U.S. Equity ETF | AVUS | ETF | Yes | $6.71B | 14.5% | 1.3% | 0.15% |
| Avantis International Small Cap Value ETF | AVDV | ETF | Yes | $5.63B | 12% | 3.4% | 0.36% |
| PIMCO Active Bond Exchange-Traded Fund | BOND | ETF | Yes | $4.23B | 4.8% | 5% | 0.58% |
| VictoryShares Core Intermediate Bond ETF | UITB | ETF | Yes | $1.99B | 3.9% | 3.6% | 0.38% |
Where Does Active Outperform?
Morningstar’s Active/Passive Barometer shows that most active ETFs fall well short of their passive counterparts. That said, active funds outperform their passive peers in a few pockets of the market. And, of course, even if most active funds underperform, that doesn’t mean every active fund is a bad bet for investors.
The only category outperforming over a 15-year period was corporate bonds. That’s because bond markets are less efficient than equity markets, creating more opportunities for managers to identify mispriced securities. Over a 10-year period, real estate funds get added to the list thanks to local market knowledge and other factors.
While active international funds have only outperformed over the past year, there’s a higher dispersion of returns amongst them. So, a handful of long running active managers in the international space outperformed their passive counterparts.
1. Dimensional U.S. High Profitability ETF (DUHP)
The Dimensional U.S. High Profitability ETF (DUHP), as its name implies, invests in highly profitable large-cap companies. With a 0.22% expense ratio, it’s also on the cheaper end of the spectrum for active ETFs. However, the focus on profitability skews the portfolio toward tech stocks, healthcare stocks, and consumer cyclical stocks.
Since its 2022 inception, the fund’s 13.86% return has outpaced its benchmark’s 12.84% return (the Russell 1000). That said, investors may want to be mindful of the economic backdrop as the reliance on tech and consumer cyclical stocks could undermine performance if the economy goes into a recession.
2. Avantis U.S. Equity ETF (AVUS)
The Avantis U.S. Equity ETF (AVUS) is one of the most unique funds on our list. Its modest 0.15% expense ratio looks more like a passive fund, but its focus on companies trading at lower valuations with higher profitability ratios increases expected returns. This is made possible by an efficient portfolio management and trading process that minimizes cost.
The result is a 0.87% average annual outperformance versus its Russell 3000 benchmark. While its year-to-date return lags the benchmark, it’s one month, three-month, one year, and three year returns all exceed it, pointing to robust outperformance. It also has a higher Sharpe ratio than its category and benchmark index.
3. Avantis International Small Cap Value ETF (AVDV)
The Avantis International Small Cap Value ETF (AVDV) has one of the best track records compared to its benchmark index—not surprising given the tendency of active international funds to outperform. That said, the fund’s 0.36% expense ratio is higher than the previous two funds on the list and its beta is 8% higher than its category.
In the three years since its inception, the fund returned 4.77% on average compared to a 1.71% loss for its benchmark (the MSCI World Ex-USA Small Cap Index). The fund also maintains diversified exposure with low turnover using an indexing strategy that incorporates management expertise into the equation.
4. PIMCO Active Bond ETF (BOND)
The PIMCO Active Bond ETF (BOND) may not have the most impressive raw return, but for a bond fund, it’s remarkably consistent in beating its benchmark. Throughout its decades-long track record, the fund has focused on higher-quality intermediate-term bonds that it actively seeks out across different market cycles.
Since its inception, the fund has returned 2.74% on average each year compared to its benchmark’s (the Bloomberg U.S. Aggregate Index) 1.69% annualized return. And its actively managed approach has also helped mitigate risks during key economic downturns, providing an added benefit for risk-averse investors.
5. VictoryShares Core Intermediate Bond ETF (UITB)
The VictoryShares Core Intermediate Bond ETF (UITB) is another outperforming bond fund. With a focus on investment-grade corporate and government debt, the actively managed funds typically holds maturities of three to ten years, providing greater income potential than short-term bond funds.
Over the past five years, the fund returned 0.95% on average compared to 0.19% for its benchmark index (the Bloomberg U.S. Aggregate Bond Index). And its 0.38% expense ratio is more modest than BOND’s 0.55% net expense ratio, making it the cheaper option.
The Bottom Line
While Warren Buffett’s advice to invest in low-cost index funds holds merit for most investors, we highlight some actively managed ETFs can consistently outperform their benchmarks. But, of course, total return isn’t the only factor investors should consider—risk matters, too. So, before purchasing any of these funds, it’s a good idea to look at how they might fit into your broader portfolio from a risk and return standpoint.
