ETF Prime: From Risk-Managed ETFs to AI Investing With WEBs & Alger

The latest ETF Prime episode featured WEBs Investments' Ben Fulton discussing their new suite of 13 defined volatility ETFs, which use a rules-based, tax-efficient approach to dynamically adjust market exposure based on real-time volatility, designed for long-term equity allocation complementation. Additionally, Alger's Arthur Nowak outlined their active, innovation-focused investment philosophy, exemplified by the Alger AI Enablers & Adopters ETF (ALAI), stressing the importance of thorough due diligence for active ETFs, even in current elevated market valuations.

Analysis

The discussion highlights two distinct approaches to ETF product innovation aimed at addressing current market dynamics: systematic volatility management and active thematic investing. WEBs Investments is launching a suite of 13 defined volatility ETFs that employ a rules-based, mechanical process to adjust equity exposure daily based on realized volatility. These tax-efficient products, which use sector SPDRs like the Technology Select Sector SPDR Fund (XLK) as underlying assets, are positioned for long-term investors seeking to complement traditional allocations with a volatility-aware strategy, though the firm acknowledges risks associated with sharp market moves. Conversely, Alger's strategy, exemplified by its AI Enablers & Adopters ETF (ALAI), centers on a high-conviction, bottom-up active management philosophy focused on 'positive dynamic change' such as AI and digital disruption. Alger's representative argues that even in a market with elevated valuations, an active approach that properly assesses intangible assets and future earnings potential can identify long-term opportunities, stressing that investors must apply the same due diligence to active ETFs—evaluating team, process, and philosophy—as they would to mutual funds.

Key Decisions for Investors

• Investors with a multi-year horizon seeking to moderate portfolio volatility should evaluate WEBs' new defined volatility ETFs as a potential rules-based complement to core equity holdings.
• For exposure to high-growth themes like AI, Alger's ALAI offers an active management approach, but this requires conviction in the manager's ability to select winners and justify elevated valuations through fundamental analysis of future potential.
• The increasing complexity in the ETF market, from systematic to active strategies, demands rigorous due diligence on the underlying process, philosophy, and management team before committing capital.