Looking to invest abroad? You’re not alone. With U.S. stocks expensive right now, investors may want to diversify with foreign equities. Of course, not all routes into those securities are the same. With continued volatility in the U.S. and worldwide related to politics, currencies, energy, and more, inflexible passive strategies may be hamstrung. Instead, it may be worth taking a look at three reasons to lean on active investing when investing abroad.
See more: This Sleeper Trend May Be Set to Turbocharge Active ETFs
Active ETFs
Why take the plunge into foreign equities via active investing? For one, active ETFs are available as a transparent, tradeable, tax-efficient option. Active ETFs have come on in leaps and bounds in recent years, gathering significant flows relative to their smaller AUM. With fewer taxable events than mutual funds, they put less downward pressure on returns.
Expertise in Foreign Equities
Furthermore, by leaning into active ETFs, particularly, investors can benefit from often significant managerial expertise in a given area. Having a manager and research team with a deep knowledge of a foreign market, for example, can help set that strategy apart.
The T. Rowe Price International Equity ETF (TOUS) presents one example. Launched a little over a year ago, it charges a 50 basis point (bps). The strategy leans on T. Rowe Price’s research to invest actively in non-U.S. stocks.
Flexibility to Over or Underweight Stocks
Perhaps most important when it comes to being active, however, is the ability to be flexible. Passive strategies are required to stick to their index, through good or bad. An active strategy, by contrast, can avoid the worst of volatility or a downturn thanks to its managers’ input. More than just in the downturns, however, active ETFs can also seek to outperform in the upswings. The freedom of active investing strategies to overweight a given stock can be a key differentiator.
Individually, each of these holds weight in the case for active. Together, they present an intriguing overall pitch for adding some foreign equities diversification via active ETF investing.
For more news, information, and analysis, visit the Active ETF Channel.
