Oct 12, 2026 · 28 min
Active ETFs can fill gaps in passive portfolios
Should I add active ETFs to my portfolio? I asked an adviser
The episode offers a framework for deciding whether active strategies add diversification or merely duplicate existing exposures.
- 1Passive ETFs can create concentration risk when market-cap weighting overexposes investors to major holdings or sectors.
- 2Active funds may complement a passive core when they address a specific portfolio gap or pursue a genuinely different strategy.
- 3Investors should weigh fees, time horizon, stated approach, and performance across market conditions before choosing an active manager.
Don't miss
Amie Baker clarifies that an ETF is an investment vehicle, not a strategy, using the distinction to challenge product-label thinking.
The brief
Jess and adviser Amie Baker examine whether investors with mostly passive portfolios should add active management, beginning with a practical concern: what hidden concentration or gaps already exist?
Passive ETFs track indexes, often through market-cap weighting, so broad exposure can still tilt heavily toward a few companies or sectors. Active managers instead make deliberate security and portfolio decisions.
The central argument is less active versus passive than core versus satellite: each holding should have a distinct job, whether providing index exposure, defense, income, alternatives, or another form of diversification.
Baker’s most useful distinction is that an ETF is simply a vehicle. Two ETFs can hold very different strategies, costs, and risks, so the label alone says little about their role.
The episode closes with a measured process: start simply, identify portfolio gaps, inspect what a manager does differently, and review fees and results across changing market conditions.