Fuse Blog

Active Equity ETF Clones Outperform their Mutual Fund Counterparts

  • We looked at 26 active equity ETFs that were launched as “clones” of existing equity mutual funds. As of the first quarter of 2024, 88% of active equity ETF clones outperformed their mutual fund counterparts in post-tax returns, with an average annualized performance increase of 104 basis points on a 3-year basis.
  • The primary factor contributing to the improved performance of active equity ETFs is their tax efficiency, achieved through the vehicle’s ability to conduct in-kind transactions. Over the 3-year period, 85% of active equity ETFs had a lower tax-cost ratio (the hit to returns from taxes paid at the fund level).
  • Other factors contributing to the increased performance include net expenses and pre-tax returns. On average, active equity clone ETFs had net expenses 4 basis points lower than their mutual fund counterparts. Pre-tax returns had an even more significant impact, providing an average annualized benefit to performance of 26 basis points over the 3-year period.
Blog 6.25.24 Final