Active ETFs had already outgrown their passive rivals for the start of 2023, and new data reinforces their success. More than half of active strategies also outperformed their passive rivals in that time span across almost every single equity or bond category. Passive strategies only outdid their active peers in corporate bond funds. All other areas saw active dominance. What, then, can advisors and investors take away from that trend, and how might actives perform moving forward?
Whereas 43% of active strategies outperformed their passive rivals in December 2022, 57% did so in the first half of 2023. That follows other research from Morningstar showing that active ETFs posted a 14% organic growth rate compared to just 3% for passives. So what’s driving this outperformance?
Active ETFs’ ability to adapt quickly to changing events may provide one explanation. While passive, indexed-tracking or replicating strategies often make decisions by committee, active ETFs trust their experienced managers to move with the market. In a year defined so far by looming uncertainty around rising rates, recession versus soft landing narratives, and even a mini bank crisis, that adaptability has stood out.
Active ETFs’ Approach to 2023 Challenges
Concentration risk, too, may offer an explanation for the interest in active strategies. The S&P 500 has relied very heavily on just 10 or so stocks to drive the vast majority of its growth. Much of that growth has also owed to tech, specifically. Actively managed strategies’ flexibility allows them to apply screens that can more easily target the best parts of tech while also mitigating concentration risk.
T. Rowe Price offers a suite of actively managed ETFs that may be worth taking a look at. That roster includes funds like the T. Rowe Price U.S. Equity Research ETF (TSPA), for example.
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