Passive ETFs are cheaper and more popular than their active counterparts. However, there are signs to suggest that markets are starting to serve active management. Per Morningstar’s U.S. Active/Passive Barometer Midyear Report, more than half (57%) of actively managed ETFs outperformed their passive counterparts between June 2022 and June 2023. That’s up from 43% in 2022.
And that success was among large- and small-cap active managers alike. Additionally, most active large-cap managers (53%) outperformed their passive counterparts from June 2022 to June 2023. Meanwhile, 65% of active small-cap managers beat their passive competitors.
“Managers of active strategies have been able to take advantage of the market volatility this year,” said VettaFi’s head of research Todd Rosenbluth. “Stock selection has helped them to add value.”
The Start of a New Era
This shift to favoring active managers is thanks in part to the Federal Reserve aggressively raising interest rates to curb high inflation.
“We’re in a different interest rate era and a different monetary policy era — one of shrinking central bank balance sheets and less liquidity,” Causeway Capital Management CEO Sarah Ketterer told Pensions & Investments. “And it’s just started.”
Added Ketterer: “The effects of rate rises take 18 to 24 months from when they first begin. So we’re only 18 months from the first rate rise, and the U.S. began before the other developed markets. So in a year from now, this could be even more fascinating.”
As part of its lineup of active ETFs, T. Rowe Price offers a suite of actively managed equity ETFs, including the T. Rowe Price Blue Chip Growth ETF (TCHP), the T. Rowe Price Dividend Growth ETF (TDVG), the T. Rowe Price Equity Income ETF (TEQI), the T. Rowe Price Growth Stock ETF (TGRW), and the T. Rowe Price US Equity Research ETF (TSPA).
For more news, information, and analysis, visit the Active ETF Channel.