Volatility is looking like a permanent feature rather than the occasional shock, amid geopolitical tensions and shifting policy agendas. For investors sitting on equity-heavy portfolios, the question is:  when is the right time to put cash to work, and how may they stay invested without taking outsized risk?

The simple answer is that timing the market is not easy and investors need to rely on tools that allow them to build more resilient portfolios. One such tool is actively managed ETFs. The investment vehicle has the potential to navigate markets and achieve the right outcome for investors as leadership across asset classes vary year to year as the chart below shows.

What value do active ETFs add for Asia Pacific (APAC) investors, particularly in equity-biased portfolios?

Many APAC investors are familiar with using passive ETFs or those that track an index to access broad equity indices. Though these are effective tools, maintaining a passive, equity-only allocation may not always be the ideal solution.

A solution is to blend active ETFs into an equity-biased portfolio. It can help in three ways:

1. Provide diversification within equities: Some active ETFs use an options overlay strategy to seek part of their return by earning option premiums from selling call options, rather than relying solely on capital gains¹. This income is not dividend-dependent and may help smooth returns during periods of elevated volatility.

2. Access investment opportunities: Passive ETFs may present broad, efficient exposure. However, such rules-based indices may create unintended concentration—for example, when the largest companies dominate market-cap weighted equity ETFs and the biggest borrowers receive the largest weights in bond ETFs.

Active ETFs use fundamental analysis and forward-looking views to seek exposures that may be overlooked in passive indices, with aims that may include potential outperformance, more intentional positioning, concentration management, and avoiding crowded areas of risk.

3. Flexibility to weather against market swings: In uncertain, volatile markets, investors often feel pressure to rotate quickly, but frequent switching may not necessarily be the most efficient strategy. Active ETFs may help by embedding ongoing security selection and risk management²  within the strategy. Rather than requiring investors to anticipate market regime shifts, managers of active ETFs adjust positioning as conditions evolve.

These features of active ETFs help a portfolio potentially experience less pronounced peaks and troughs—all delivered via an exchange-traded, liquid, and transparent vehicle.

So, how do investors fit active ETFs into existing portfolios?

There is no need to overhaul your entire portfolio to benefit from active ETFs. Investors may take:

• The "lite" approach: A practical starting point is to keep broad market passive ETFs as the core of the portfolio, then add active ETFs as satellite positions to add resilience.
• The "advanced" approach: As investors become more comfortable with how a strategy behaves across market conditions, active ETFs can move from a tactical add-on to a strategic building block. In this role, they can help investors shape the portfolio around specific outcomes—whether that's income, downside mitigation, or exposure to a high-conviction theme. They may also help investors pursue potential alpha over time, as excess returns from active ETFs compound over the long term. 

Conclusion

For APAC investors with equity-rich portfolios, active ETFs may be a practical way to broaden the portfolio’s sources of return. A smoother investment experience can help investors to stay focused on long-term outcomes—without giving up core equity convictions.