Investors looking to allocate to U.S. large caps often opt for passive index products as a way to achieve market returns with reduced risk.
Active management can take this core allocation to the next level by providing the opportunity for higher return potential.
For example, in T. Rowe Price’s latest ETF, the T. Rowe Price US Equity Research ETF (TSPA), the portfolio managers use an active, research-driven process to deliver large cap exposure with a similar risk and sector profile as the S&P 500 Index—but with significantly higher performance.
TSPA’s investment objective is to seek long-term capital gains greater than the S&P 500 Index over a full market cycle. The ETF matches this benchmark index in sector and industry allocation, then utilizes the S&P’s current performance to guide the weighting, position sizes, and exposure to non-benchmark securities.
T. Rowe Price has decades of research-driven investing experience with its other ETF and mutual fund offerings. The mutual fund equivalent of TSPA, the T. Rowe Price U.S. Equity Research Fund (PRCOX), was launched in 1994. Since its inception, the mutual fund version of the strategy has outperformed the S&P 500 Index, even after expenses (through Q2 2021).
TSPA is managed by the same portfolio managers as that mutual fund, who bring with them decades of research and analysis experience. Ann Holcomb, Jason B. Polun, Thomas Watson, and Josh Nelson are all vice presidents of T. Rowe Price Group, Inc. and co-portfolio managers of TSPA.
However, the insights of roughly 30 equity research analysts help to guide the fund’s bottom-up stock selection. They work to select outperforming stocks while avoiding underperformers, and have shown through long-term fundamental and quantitative research to do so effectively.
Many of the companies in TSPA’s portfolio include stocks from the S&P 500 universe, including Microsoft (MSFT), Apple (APPL), and Amazon (AMZN). However, TSPA’s managers add value by identifying attractive stocks from outside the index, as well.
Research when evaluating companies for inclusion in TSPA incorporates an analysis of the company’s overall financial position using key finance metrics, such as return on capital and earnings per share, as well as evaluating the business model and market position of the company.
T. Rowe Price’s research-driven approach means that investors can sit secure in the knowledge that the ETF is actively capitalizing on market changes, guided by experienced analysts in real time under an experienced management team.
The goal of long-term capital gains means that the portfolio contains between 200-275 securities and follows the S&P 500 at a 1.75% predicted tracking error.
TSPA is an appropriate choice for investors looking to maximize their gains while following a diversified core equity holding similar to the exposure often sought from the S&P 500. The flexibility of an actively managed ETF allows for cost-effective investing in a product that will continue to add value over time.
For more information, please visit the issuer’s fund page for TSPA.
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