An Active ETF for an Uncertain Inflation Outlook

Investors have by now heard quite a lot of back and forth about what to do about inflation. Inflation has significantly cooled since the start of 2023, certainly, from a doom-and-gloom outlook to a much more optimistic narrative. The Fed’s rapid rate hikes have succeeded to some degree, but are excited headlines about potential rate cuts arriving too soon? Recognizing that the inflation outlook is uncertain may underline the case for adding an active ETF.

Why active? Active strategies bring inherent flexibility as well as seasoned management. Indexed funds are required to stick to their indexes and therefore lack the ability to over- or underweight stocks as needed. That allows managers with serious experience and savvy in a particular sector to really contribute notably.

See more: “Active ETF TCAF Nearing Half a Billion in AUM

Actives have done very well this year, picking up significant interest and flows. So what about inflation speaks to adding another active ETF, or a first active ETF for those who’ve yet to add one?

While previous inflation discourse has perhaps overemphasized the Fed and whether it will hike or cut, inflation itself sits at an inflection point. There is a case for optimism, driven by cooling inflation reads and job openings, but also pessimism in a “self-defeating” excitement about inflation that may just reaccelerate price growth.

How Active ETF TSPA Could Play a Role

So what kind of active ETF could appeal? Perhaps the T. Rowe Price U.S. Equity Research ETF (TSPA) could play a role. The strategy actively invests to provide broadly similar exposure to the S&P 500. However, in doing so, it aims to be sector neutral by weighting each industry close to the index while weighting individual holdings based on fundamental research.

That approach has helped TSPA return 23.7% YTD for 34 basis points. For investors looking for an active ETF before the new year, TSPA may be worth checking out.

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