Active ETFs had a big, big year in 2023. At the recent ETF Exchange conference in Miami, active strategies dominated the discussion, with growing interest among issuers and investors in actively managed funds. T. Rowe Price’s ETF suite is entirely actively managed, with the firm leaning on a fundamental approach. VettaFi sat down with T. Rowe Price’s Head of ETFs, Tim Coyne, to discuss the active trend and T. Rowe Price’s place in it.
See more: “Active ETFs Gaining Popularity vs. Mutual Funds“
The firm has seen its T. Rowe Price Capital Appreciation ETF (TCAF) skyrocket in AUM over the last few months. Having only launched in June, the strategy has gathered nearly $900 million in AUM per VettaFi data as of February 16th. That growth speaks to the firm’s growing role in the active investing landscape.
“We still feel like we’re very early days in our journey in developing high-quality products that we’ve brought to market,” Coyne said. “We’re going to continue to expand on that.”
The firm will look to continue leveraging its fundamental, bottom-up investment process, Coyne said. That process includes hundreds of meetings with companies around the world as a differentiator, for example, providing deep research on individual firms.
White Space in Active ETFs
As noted by ETF Prime podcast host and ETF Store president Nate Geraci on Twitter, one trend at the conference focused on issuers seeing white space in active ETFs. For Coyne, the market does seem to be taking notice of a lack of “high quality” active ETFs.
“There is clear demand for active strategies by advisors and, more broadly, investors,” Coyne said. “I do think there are certain asset classes that are underrepresented, including fixed income and, for instance, high yield. I think it’s underrepresented in the ETF offering at the industry level.”
For example, T. Rowe Price offers an active ETF focused on high yield. The firm’s T. Rowe Price U.S. High Yield ETF (THYF) charges only a 56 basis point (bps) fee to invest in high-yield debt instruments. It has outperformed its ETF Database and Factset Segment averages over the last year per VettaFi data.
T. Rowe Price’s Active ETF Suite
Coyne added that the size gap between active mutual funds and active ETFs could present a big opportunity. The firm hasn’t filed for exemptive relief from the SEC for an ETF share class of mutual funds. T. Rowe Price is monitoring that process, however.
He added that the firm will continue to look at building out a core offering, with the potential of looking at satellite products and perhaps thematics that could work with them. As for trends, Coyne sees growing adoption for active ETFs among model portfolios, with some that had previously used passive-only index ETFs now adding active ETFs to their holdings.
“I think what’s happened even from last year versus this year, active ETFs have definitely moved more mainstream. I think for a long time, ETFs were very synonymous with passive, and I think that story has changed,” Coyne said.
“So, I think last year was a pivotal point, in terms of greater exposure, and I think the value proposition is more clearly understood on active ETFs,” he added.
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