How Active Investing Boosts the Overall Economy | ETF Trends

Markets had been living through an era of slow burn, low interest rate-boosted index funds for years until rapid rate hikes in 2022 and 2023. That era of passive ETF ascendancy led some to look past the benefits active investing can provide. Not only do active investing products like active ETFs provide direct benefits to their investors, but also it boosts the overall economy, as well. As such, investors may want to consider the dual short and long term benefits of active investing.

The notion that active investing boosts the overall economy received new scrutiny in a recent working paper out of Duke University. Analysis by Professor Simon Gervais at Duke’s Fuqua School of Business suggests that active management provides a big boost to the economy.

See more: What the End of Cheap Money Means for Active Investing

By identifying the most productive industries and signaling to others how firms should be priced via their stocks, active investors boost market efficiency. Per the Professor’s research, the presence of active managers alone may boost the overall economy thanks to the information they gather. As an example, the Professor suggested that while markets may read a merger as one level of information, active managers may add levels of analysis by considering the merger’s impact on the broader market.

Implications of Active Investing’s Role in the Overall Economy

So, what does that mean for the active investors themselves, like those who invest in active ETFs? There is a possibility that such a relationship, in which active investing boosts the economy, which in turn entices more active investing, could stimulate a useful positive feedback loop. In such a scenario, the burgeoning active ETF landscape that grew so much in 2023 could gather some serious momentum.

As such, investors may want to consider the wide variety of active ETFs at their disposal. T. Rowe Price offers a suite of active strategies that could appeal, for example, like the T. Rowe Price Capital Appreciation Equity ETF (TCAF).

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