Earlier this month, T. Rowe Price (NASDAQ-GS: TROW) added to its lineup of actively managed exchange traded funds with the launch of the T. Rowe Price U.S. Equity Research ETF (TSPA). The fund could be a rookie ETF to get to know.
TSPA’s strategy is straightforward. Its sector allocations and growth and value leanings are similar to those of the S&P 500, but the fund’s managers can overweight the best ideas from T. Rowe Price’s equity research team. That could prove to be beneficial methodology in the back half of the year no matter if cyclical stocks continue rallying or if growth stocks retake the leadership mantle they ceded to value late last year.
Active funds, such as TSPA, may also be better equipped to adjust to rapid changes in the investment landscape.
“But this new economic landscape poses a number of critical questions for investors,” according to T. Rowe Price’s midyear investment outlook. “A key one is whether growth will be strong enough to meet optimistic earnings expectations without fueling sustained inflationary pressures—the kind that could force the U.S. Federal Reserve and other central banks to speed up a turn toward tighter monetary policy.”
TSPA’s broad market approach is relevant for other reasons. At a time when inflation is here (although it may be transitory) and amid a rising chorus of expectations that the Federal Reserve may accelerate its timeline for rate hikes, embracing bonds is tricky. Not to mention the paltry yields offered by Treasuries.
“To make the case that broad equity valuations are attractive, you have to rely on an argument that there’s no practical alternative,” says Robert Sharps, president, head of Investments, and group chief investment officer (CIO).
TSPA could prove potent for another reason: some valuation metrics on broader equity benchmark look a little frothy.
“That said, many broad equity averages appear stretched even after factoring in ultralow interest rates, Sharps adds. This suggests that equity investors could face more subdued return prospects,” according to T. Rowe Price.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.