While it may seem smaller with the benefit of time passing, the banking crisis that hit earlier this year spooked markets. For that week or so in the spring, markets feared a major contagion among banks, as institutions laden with low-rate bonds faced rapidly rising rates. Markets have since moved past that initial fear, but as long as rates remain high, banking challenges still linger. As such, investors may want to consider how active investing could deal with volatility from a potential bank crisis.
Although the larger banks already faced scrutiny from markets about their bond holdings, small banks remain under threat. Community banks across the country already faced limited loan growth and had instead leaned into purchasing Treasurys, municipal bonds, and other debt securities.
Those offerings took a big direct hit when rates climbed so quickly, leaving those banks with serious challenges. Per data assessed by the Wall Street Journal, more than 300 banks had half of their assets in securities in the third quarter. At 100 of those same institutions, that number reached more than 75%.
Taken together, those risks to so many banks could potentially harm the broader economy. Even if the U.S. economy pulls off a soft landing, the economy will still likely cool next year. Add in another bank crisis, and investors may want to mind the volatility.
Active investing can provide one solution. Active ETFs can mitigate volatility in the economy thanks to their ability to adapt faster than their passive peers. Such strategies also bring to bear seasoned managers who understand their sectors and have often managed through similar scenarios.
T. Rowe Price offers a suite of active ETFs, including the T. Rowe Price Capital Appreciation Equity ETF (TCAF). For investors watching cautiously for a potential bank crisis, active investing may be worth considering.
For more news, information, and analysis, visit the Active ETF Channel.