Active exchange traded funds (ETFs) are on the rise in general in a trend that has come back around to the roots of investing. What began with actively managed mutual funds a century ago has now come around to favoring active management again, although now this favor comes in the more tax-efficient form of the ETF.
In the past two years alone, the amount of active ETFs has more than doubled, with assets more than tripling, reports Barron’s. Of all the ETFs launched between last year and this year, over half were actively managed; 379 funds were under active management, which equates to nearly 60% of all funds introduced, and more than all active ETFs launched total in the past 10 years.
This is a trend that the mutual fund industry has definitely taken note of with major mutual fund giants such as T. Rowe Price, Fidelity Investments, and American Century all launching their own ETFs, typically modeled after successful mutual fund offerings.
The appeal of the ETF vehicle lies in its tax efficiency and ability to be traded at any time. Mutual funds are more tax-laden and only trade once a day, after closing. The great advantage to active funds is their ability to respond to market changes, a key perk that is most noticeable during times of volatility.
With current concerns about inflation, impending Fed pullback, and other factors, market spread has increased drastically in recent weeks. Some of the largest tech companies experiencing recent pullbacks has had a heavy impact on markets; during the last two weeks, losses by the five largest holdings within the S&P 500 have been greater than the actual index’s losses.
Active managers have been responding by working to reduce risk and find opportunities in valuations, all while working to maintain their funds’ capital. Times like these are when investors often prefer to go with a well-established company with a solid performance history.
Active management firm T. Rowe Price believes in the difference and benefits to active investing and active management. The firm currently offers five actively managed ETFs for investors who are looking to invest in an environment of record IPOs that benefits stock pickers. The firm brings a bevy of experience and research to its products, with portfolio managers averaging over 20 years in investing each, as well as over 400 investment professionals dedicated to researching companies within ETFs.
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