What is the difference between passive and active ETFs?

Passive ETFs and active ETFs are two different types of exchangetraded funds that vary in their investment strategies and management styles.

Passive ETFs, also known as index ETFs, aim to track a specific market index or benchmark by investing in the same securities as the index, in the same proportions. For example, a passive ETF tracking the S&P 500 would hold the same stocks as the index, in the same weightings. Passive ETFs are managed to minimize tracking errors and to closely follow the benchmark's returns. Passive ETFs generally have lower management fees and operating expenses than active ETFs.

On the other hand, active ETFs have investment managers who aim to outperform the market by making buying and selling decisions based on their own research and market analysis. Active ETFs do not track a specific index and have more flexibility in their investment strategy, such as stock picking, market timing, and sector rotation. Active ETFs have higher management fees and operating expenses than passive ETFs due to their more active management style.

It's worth noting that the line between passive and active ETFs can sometimes be blurry, as some ETFs may have some active management while still being considered passive. Additionally, some ETFs may use derivatives or leverage to enhance returns, which may increase risks and costs. It's important to carefully consider the investment strategy, risk profile, and fees of any ETF before investing.