Active exchange-traded funds are growing rapidly for good reason. They have greater tax advantages and lower fees than most of their open-end counterparts. As a result, they have a much lower hurdle to beating indexes.
In addition, there are quite a few areas where active funds, including ETFs, generally beat their benchmarks, such as limited liquidity, which makes passive investing more difficult and costly, and the fact that some areas are just less efficient.
Some ETFs are clones of open-end counterparts, others are near-clones, some have converted from open-end funds, and some are unique without any open-end counterparts.
I’ll share some of my favorites, which all have Morningstar Medalist Ratings of Gold.
Bonds
Fixed income is where actively managed funds still dominate. Bonds have liquidity challenges that stocks don’t face, and active managers have many levers to pull to outperform. Combine that with the lower costs of ETFs, and you have a good formula for successful active ETFs. The tax advantages are less meaningful, however, as nearly all their return comes via income rather than capital gains.
Fidelity Total Bond ETF FBND has run comfortably ahead of its benchmark and intermediate core-plus bond Morningstar Category peers under manager Ford O’Neil. At Fidelity, bond ETFs tend to run pretty much in sync with open-end funds. Issue selection, modest macro bets, and a tilt toward corporate bonds have enabled this fund to produce solid returns, while sensible guardrails have moderated the downside.
O’Neil is set to retire next month, but we are confident in comanager Celso Munoz and the fund’s other managers. Fidelity also supports the team well with an array of technology to keep its edge. We rate it High on all pillars.
Pimco Active Bond ETF BOND is not a clone of Pimco Total Return PTTRX. It has different managers, a different mandate, and some differences in the portfolio. David Braun, Daniel Hyman, and Jerome Schneider pursue income a bit more than total return, and they don’t use derivatives, as that can be tricky in an ETF. Moreover, they have fewer currency bets and more mortgage exposure than flagship Pimco Total Return. Pimco Active Bond ETF boasts strong three-year returns but is more middling for the trailing five- and 10-year periods.
Fidelity Limited Term Bond ETF FLTB invests in short-term bonds, which work nicely in an ETF given their high level of liquidity. The fund has a nice 30-day yield of 4.7%. That’s because it does take on credit risk while keeping interest rate risk low. At the end of June 2026, it had about a third of its assets in BBB rated securities and another 8% below that. It did lose nearly 6% in 2022, but it has had mostly positive returns. Comanager Julian Potenza stepped down in March, but we remain confident in the team led by Rob Galusza.
Capital Group Municipal Income ETF CGMU is another excellent option. Many munis are bought and held, and that makes it all but impossible for muni index funds to track muni indexes. Indexes need to add incrementally as new money comes in, but they can’t do that easily when supply is so low.
Capital Group has really improved its muni team over the past 15 years, and that makes this fund a compelling investment. At the start of this year, the fund switched from a single manager to the more common team approach you usually see at American Funds. Courtney Wolf, Mark Marinella, and Jerome Solomon each boast at least two decades of experience. They take on a decent amount of credit risk, as the fund will own more in BB and nonrated debt than peers. Three-year returns are in the top decile of the muni-national intermediate category. The fund charges just 0.27% in expenses and has a tax-free yield of 3.30%.
T. Rowe Price Floating Rate ETF TFLR also operates in a less efficient space, as bank-loan trades take longer to settle than most fixed-income securities. Also, there’s a fair amount of credit risk in the asset class, so a strong team of analysts is crucial to success. Paul Massaro leads a 20-person fundamental leveraged credit research team. That group has succeeded in producing strong returns with very few blowups. Trailing three-year returns are top quartile, yield is about 6.30%, and fees are 0.61%. Bank-loan funds go in and out of favor depending upon the perceived likelihood of rising interest rates, but they can be rewarding long-term holdings even if you aren’t trying to bet on a spike in rates.
Foreign and Global Equity
Dimensional International Small Cap ETF DFIS is a strong diversifier, as there are not a lot of good foreign small-cap options in the fund world. Foreign small caps have lower correlation with US large caps than foreign large caps do, so they are pretty useful in portfolio building.
Dimensional straddles the line between active and passive, both in terms of strategy and fees. Rather than track an index, Dimensional targets the smallest eighth of developed-market stocks and scoops up more than 3,000 of them. The managers screen out some of the least-profitable and highest-valuation stocks, but obviously, they are not too picky. They also have a savvy approach to trading stocks, which is to act as a provider of liquidity so the large spreads of foreign small caps work for them rather than against them. It’s unexciting but effective. I own the open-end version of this fund via Morningstar’s 401(k).
JPMorgan Global Select Equity ETF JGLO is a classic stock-picking vehicle with about 80 stocks spanning the globe. Lead manager Helge Skibeli has nearly four decades of experience and the support of a deep team of managers and analysts. The approach is to find stocks with great fundamentals while being mindful of sectors and country exposure. The ETF just reached its third anniversary, but the strategy dates back to 2015, and it is well ahead of peers and modestly ahead of the benchmark.
US Equity
Capital Group Dividend Value ETF CGDV appeals because it’s right in Capital Group’s wheelhouse, and it has a cheap 0.33% fee. Capital Group has many strategies that focus on dividends, and they do a good job of getting decent dividends from solid companies that can increase their share prices and dividends. The team doesn’t take big risks to get maximum yield.
Dimensional US Small Cap Value ETF DFSV is very much like the firm’s international fund, except for its US focus and greater value emphasis. Seeking the smallest decile of US stocks, the fund screens for low price/book ratios while also screening out low-profitability stocks. If your portfolio is heavily weighted toward the Magnificent Seven names of Alphabet GOOGL, Amazon.com AMZN, Apple AAPL, Meta Platforms META, Microsoft MSFT, Nvidia NVDA, and Tesla TSLA, this fund is a nice counterbalance.
Natixis Loomis Sayles Focused Growth ETF LSGR, on the other hand, is very much at home with the Magnificent Seven. Aziz Hamzaogullari has built a great record with a patient growth strategy, which you can see in the open-end fund Loomis Sayles Growth LGRRX. There are some key differences between the two, however. The ETF is a more focused portfolio of about 20 stocks compared with 30 or more in the open-end fund. Also, the open-end fund will buy some foreign names, whereas this ETF is strictly a US fund.
Oakmark U.S. Large Cap ETF OAKM is another focused stock-picking vehicle. Led by Bill Nygren, Robert Bierig, and Michael Nicolas, the fund is clearly a bet on Oakmark’s stock selection. The fund’s concentration level is actually between that of open-end siblings Oakmark OAKMX and Oakmark Select OAKLX. So, you really can choose the diversification level that you want. At 67, Nygren has signaled he’s headed for retirement at a later date, but we have faith in Bierig and Nicolas.
T. Rowe Price Capital Appreciation Equity ETF TCAF is a well-designed strategy with a great manager. David Giroux runs it like the equity sleeve of his hugely popular T. Rowe Price Capital Appreciation PRWCX. However, this ETF sheds the open-end fund’s bonds and convertibles, which are more capacity-constrained than the equity component.
Currently, the ETF has sizable weightings in tech and healthcare, but Giroux is known to shift around the Morningstar Style Box depending on where he finds attractive stocks. Naturally, the ETF’s pure equity portfolio means you should expect higher returns and greater loss potential than the mutual fund. Performance has been sluggish in the three years since launch, but as a fund shareholder, I see potential.
T. Rowe Price Dividend Growth ETF TDVG is an appealing vehicle for an out-of-favor strategy. Dividend growth has lagged the rest of the market because the strategy leads to high-quality stocks with great defensive characteristics, but this is a market in love with aggressive growth names like artificial intelligence plays and energy/commodities stocks on the other side. But that tells me it’s probably a good time to get in. Manager Tom Huber targets financially healthy companies that are capable of maintaining above-average payout growth. That leads him to companies like Apple, Microsoft, and Visa V. When bear markets or recessions bite, quality stocks generally provide welcome shelter.
This article first appeared in the August 2026 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.
