A Cash Mirage? A Case for Active Value | ETF Trends

Market watchers have heard the story countless times: billions, if not trillions, of investor assets are sitting on the sidelines. The idea makes “some” sense on its face, given how popular money market funds have been since the pandemic. That said, sound investing entails knowing what’s going on with cash. It may not be as abundant as thought, and a sideline cash “mirage” may boost the idea of adding an active value ETF.

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Is that cash on the sidelines, or is there more to the story? Per AdvisorPedia, there is reason to question. Money market funds relative to market capitalization are near their lowest level since 1980, the piece attests. What looks like a cash glut in money markets may hide the real story, with the bulk of money in government money market funds that charge a higher minimum, perhaps more suited to corporations or foreign investors than a standard retail investor.

It remains to be seen whether a big influx of cash hits markets. Not only the folks at AdvisorPedia but also analysts at firms like Federated Hermes have poured cold water on the amount of cash available to flow into markets from money market funds. A disappointing cash flow into markets following rate cuts could dampen overall market performance.

It may then be worth considering an active value fund for such a potential turn. To start, value could prove its worth after a few years of disappointment if markets did finally slow down. The lagging impact of rate hikes and a hesitant Fed could limit the benefits of rate cut relief. At the same time, a top-heavy market could finally feel the pinch of a broader global slowdown. Such circumstances, then, could see undervalued firms intrigue.

An active route into value, then, adds an intriguing spin. Active management can find opportunities that simple indexes might miss. At the same time, active management offers investors access to seasoned managers with a strong understanding of their investment areas.

For example, T. Rowe Price offers an active value ETF that could appeal. The T. Rowe Price Value ETF (TVAL) charges 33 basis points (bps) to invest in firms that meet its managers’ value assessments. Targeting mostly large caps, it applies fundamental research screens, too.

The strategy has outperformed its ETF Database Category and Factset Segment averages over the last three months. Should the much-vaunted sideline cash prove to be more a mirage than thought, an active value ETF like TVAL could offer a solid option.

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