Displaying items by tag: active etfs

Amid a turbulent market and new U.S. tariff regime, actively managed ETFs like the T. Rowe Price Small-Mid Cap ETF (TMSL) are gaining appeal for their flexibility, research depth, and outperformance potential. TMSL, which has outperformed the Russell 2500 Index by 170 basis points year-to-date, exemplifies how active strategies can navigate uncertainty and respond to evolving risks and opportunities. 

The new 10% blanket U.S. tariffs—unseen since 1946—have contributed to earnings downgrades and increased economic unpredictability, making adaptability a critical asset. Active managers can curate portfolios based on bottom-up analysis, selecting strong companies while avoiding those likely to underperform. 

TMSL’s focus on small- and midcap firms adds sector diversification to tech-heavy portfolios, with leading exposures in industrials, financials, and healthcare. 

Finsum: Its key to consider how fees play a role in active funds but many deliver well above depending on the economic environment. 

Active ETFs combine professional management with the liquidity and transparency of ETFs, making them powerful tools for portfolio construction. They offer investors access to active security selection and the potential to outperform benchmarks, while still benefiting from intraday trading, tax efficiency, and often lower costs. 

These funds are especially valuable in areas of the market with inefficiencies, where deep research and targeted exposure can improve outcomes. Derivative-income ETFs can enhance portfolio income and stability by generating yield through options, offering an equity-based alternative to fixed income. 

Meanwhile, buffer ETFs help manage downside risk by capping losses (and gains) over set periods, making them useful for preserving capital during volatile markets. 

Finsum: Together, these active ETF strategies provide investors with flexible, diversified, and goal-oriented components for building resilient and adaptive portfolios.

As market volatility rattles investors, many are turning to “buffer” ETFs—funds that trade off some upside potential in exchange for protection against downside risk. These ETFs, which use options strategies to cap losses while limiting gains, have drawn $4.7 billion in inflows so far this year, with a notable $140 million coming in on the S&P 500’s worst day of 2024. 

Financial advisors are increasingly adopting them to reassure clients and keep them invested during turbulent times, especially as traditional stock valuations remain high. The appeal lies in downside protection, though investors must accept lower upside caps and higher fees—some charging more than ten times what plain index ETFs do. 

Assets in buffer ETFs surged to $64 billion by February, up from $38 billion at the end of 2023, as their defensive qualities grow more attractive in an uncertain economic and political climate. 

Finsum: Some advisors warn against overcommitting, reminding investors to balance protection with realistic expectations about long-term growth and costs.

Higher income returns supported strong bond market performance in 2024, with lower-quality credit outperforming amid favorable economic conditions. The 2025 outlook for fixed income remains positive, as real interest rates are expected to stay above inflation, offering attractive yields and portfolio diversification benefits. 

While monetary easing is likely to continue, it will proceed at a slower pace, and policy uncertainties—such as trade, immigration, and fiscal decisions—could introduce market volatility. 

Given these dynamics, a tactical approach to rates and credit strategies is recommended, with a preference for sectors that have lagged in spread tightening. Municipal bonds remain compelling for high earners, offering tax-equivalent yields above most taxable sectors. 

Finsum: Disciplined risk management and active security selection can help investors navigate an evolving fixed-income landscape.

Separately managed accounts (SMAs) are evolving, with more firms integrating active management into customized portfolios. Unlike traditional SMAs that use passive indexing or third-party overlays, some new strategies incorporate direct active management for greater efficiency.

Actively managed large-cap equity SMAs, for instance, aim to provide market exposure while outperforming benchmarks through selective stock holdings. Transparency is also improving, with firms introducing after-tax reporting to help investors understand the impact of tax-efficient strategies.

Fixed-income SMAs are seeing similar advancements, with more customization options, such as state-specific municipal bond strategies.

Finsum: As the demand for personalized investing grows, SMAs are becoming a key tool for advisors seeking both performance and tax efficiency.