What kind of impact might tariffs have on U.S. investors? With a new administration seemingly intent on adding significant new tariffs to imports from key trading partners, certain goods may see significant price hikes. That not only impacts the end consumer of basic goods. It also impacts firms’ supply chains. Such a turn of events may not yet be priced in with markets in holiday mode. Given those factors, investors may want to prepare for the new year with active ETFs.
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Where passive funds must track indexes with strict rules and limited flexibility, active ETFs offer significantly more adaptability. Should tariff impacts prove to be more complex than expected, impacting supply chains in unpredictable ways, that flexibility could prove a major boon. What’s more, when active mutual funds or even passive mutual funds adapt, they often incur taxable events for shareholders. Active ETFs, by contrast, produce fewer taxable events thanks to their creation/redemption mechanism.
Indeed, that combination of flexibility and tax advantage could make some active ETFs a lower cost opportunity, especially as tariffs eat into investor portfolios. Of course, as with any macroeconomic event, certain dislocations may arise that could offer positive opportunities, too. Passive funds may not be able to take advantage, where active ETFs and their fundamental research can identify deeper opportunities when facing tariffs.
What kind of active ETFs might be poised to appeal most in a tariffs scenario? An active international equities ETF, for example, might present a potentially potent opportunity. Not only would such a fund diversify U.S. investors’ portfolios, but also provide a route into upside opportunities with few investing limits.
The T. Rowe Price International Equity ETF (TOUS) could present one option therein. Charging 50 basis points, it avoids U.S. equities and focuses on foreign opportunities. A U.S. active ETF like the T. Rowe Price Capital Appreciation Equity Fund (TCAF) focuses on domestic opportunities and leans on manager David Giroux’s experience, offering flexibility for a 31 basis point fee.
Overall, when looking to adjust to tariff impacts, active investing can help. For those investors looking to reduce tax impacts and add flexibility, active funds can appeal.
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