Looking for an active fundamentals ETF that’s on the rise? The T. Rowe Price U.S. Equity Research ETF F (TSPA) may be one to watch. The strategy will hit its three-year mark next year as an ETF. That’s traditionally an important threshold for consideration by the broader investing community. With active ETFs having a strong year in 2023 overall, investors may be looking to adjust or add to their active allocations. TSPA has a case to make to be part of that conversation.
Why TSPA? The strategy has done well compared to its benchmark, none other than the S&P 500 itself. The monolithic index has done well this year, of course, but it has still trailed TSPA. The ETF has outperformed the S&P 500 by more than 2% since the active fundamentals fund launched in 2021. The strategy has returned about 10% since then, with a similar investment returning 7.8% via the S&P 500. Per T. Rowe Price, TSPA has beaten its benchmark index by 70 basis points on average annualized since inception.
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TSPA looks to craft a portfolio with characteristics similar to the S&P 500 but with the added potential of excess returns compared to the index. The strategy looks to be sector-neutral by mostly following the S&P 500’s sector weights but aims to outperform through better security selection than the index. Approximately 35 specialized equity analysts at T. Rowe Price select the stocks in their respective area of industry coverage. TSPA is based on long-standing T. Rowe Price mutual strategy that is outperforming the index across all standard time periods (year-to-date, 1, 3, 5, and 10 years) and since its inception dating back to 1994. That kind of classic, active fundamentals ETF approach represents the broader advantages present in active management, dispelling the narrative that active can’t beat passive.
Active strategies, as opposed to their passive counterparts, can adapt weekly or even daily. In contrast, passive strategies often require prolonged meetings with whole investment committees to make changes, with those meetings pretty infrequent. Active managers bring their expertise and seasoned management to their analysis and security selection that goes beyond the limitations indexes. For investors looking ahead to 2024, a straightforward ETF like TSPA, charging only 34 basis points (bps), could appeal to investors looking for a complement or replacement of S&P 500 core equity exposure.
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