Displaying items by tag: active etfs

The T. Rowe Price International Equity ETF (TOUS) is an active ETF that has gained attention for its diversification benefits, especially after a recent market sell-off. With a competitive 50 basis point fee, TOUS focuses on high-quality international firms with strong business models and good valuations. 

TOUS has an active strategy built around macro factors through an international lens that uniquely positions it for the type of interest rate volatility the US is experiencing. 

The fund’s active management allows for flexibility in selecting companies, particularly in non-U.S. markets, which could be advantageous during volatile periods. TOUS has returned 9.8% over the past year, making it an appealing option for diversification away from U.S. mega-caps.

Finsum: We’ve been banging the drum on the need to diversify into active funds during this volatility and this recent flash was an example why. 

Actively managed exchange-traded funds (ETFs) are projected to quadruple their assets to $4 trillion globally by 2030, according to BlackRock. 

These funds are gaining traction, making up 70% of U.S.-listed ETF launches in the first half of 2024, driven by investor demand for strategies that can navigate market volatility and offer potential outperformance. The growth of active ETFs has been facilitated by a 2019 SEC regulatory change, which lowered barriers to entry and encouraged innovation.

Despite their higher costs, active ETFs are increasingly popular for their tax efficiency and flexibility. BlackRock projects the overall ETF industry will double its assets to $25 trillion by 2030.

Finsum: Volatility is driving a lot of active investment inflows, but this trend is set to continue as so much uncertainty remains. 

Vanguard, managing over $9 trillion in assets, favors high-rated corporate debt over riskier high-yield bonds to guard against potential economic downturns caused by high borrowing costs. 

Despite expectations of the Federal Reserve cutting rates by September due to cooling inflation and labor market weakness, Vanguard predicts rates will hold steady this year. 

High demand for investment-grade bonds has compressed credit spreads, but Vanguard's defensive strategy, along with its active fixed income management, is poised to perform well if the economy weakens, allowing for credit additions at more attractive prices.

Finsum: Active managers will be eyeing fall fed decisions closely as they have a huge impact on bonds.

The conversation about rate cuts is heating up again as we move into 2024. Signals from the Fed hint at potential rate reductions, spurred by weaker job numbers and rising unemployment. With a lackluster June jobs report and unemployment up to 4.1%, a September rate cut looks increasingly likely. 

For investors, active ETFs offer a strategic response, providing flexibility and potential advantages over passive index funds. These ETFs can adapt to market shifts, benefiting from lower borrowing costs for smaller growth companies. 

As the market concentrates on a few mega-cap firms, active ETFs can diversify risk and capitalize on emerging opportunities. In light of these dynamics, active strategies present a potent option for investors adjusting to the evolving economic landscape.

Finsum: Active management could prove fruitful if interest rates fall and they can capitalize on, say, growth opportunities like tech. 

When considering fixed income ETFs, active strategies offer notable advantages over passive ones. Unlike equity indexes, replicating a bond index like the U.S. Agg is "impossible" due to smaller bond quantities, infrequent trades, and varying maturities and credit ratings.

 Active management allows flexibility to adapt to shifting bond markets and interest rate environments. The T. Rowe Price QM U.S. Bond ETF (TAGG), for example, charges eight basis points and seeks to outperform the U.S. Agg through a diverse range of investment-grade U.S. bonds.

 As fixed income ETFs grow in popularity, active strategies present a valuable alternative. This trend reflects a broader move towards active management within the ETF space.

Finsum: When thinking about the advantages of active bonds its important to consider this index replicability that you can’t get in fixed income.