While exchange-traded funds have yet to offer an actively managed variety, they are creeping in that direction through elaborate indexes, many of them based on quantitative models,
One problem with such funds, however, is that if they are delivering strong performance, others will try and replicate their strategy, making it harder to achieve. But that can be overcome by constant tweaking of the computer model, Morningstar maintains.
They also tend to have high stock turnover, and, thus, high operational costs and lower tax efficiencies than other ETFs.
Finally, firms that run quantitative models tend to keep their criteria close to the vest, making it difficult for investors to evaluate their offerings.
