Why Active Stands Out for Foreign Investing | ETF Trends

Ever considered investing abroad? The time may have come to invest outside of the U.S.

With the U.S. equities environment posing its own challenges, and rate cuts looming further in the distance, foreign markets can provide some real benefits. Of course, a standard index approach may not offer the same strengths that an active strategy can.

See more: Does Rate Cut Wait-and-See Call for Value Investing?

While a passive, index-tracking approach has its benefits, it sometimes lacks the flexibility to adapt to big events. Whether a South American central bank signal, or an infrastructure breakdown at an East Asian port, such incidents can have a significant bearing on foreign equities.

An active ETF retains the freedom to adapt quickly to such changes in circumstance. More important than that adaptability, however, may be how active investing leans on managers’ experience. Many passive ETF managers work with the index provider, but that still requires communication. Active managers have the knowledge, experience, and the direct control of the ETFs themselves.

As such, foreign investing can benefit notably from active strategies. Active ETFs’ big year in 2023 may be drawing new attention to the investment style in 2024. That adaptability and experience might provide investors with outperformance as well as volatility mitigation.

While current domestic passive investments are offering solid performance thanks to the artificial intelligence craze, that may not last. Adding foreign investing diversification on top of an active approach could provide both appealing performance and some balance to a frothy, tech-heavy U.S. market.

The T. Rowe Price International Equity ETF (TOUS) could stand out as one option for an active foreign investing allocation. The strategy charges 50 basis points for its approach, having returned 6.8% over the last three months, per VettaFi data.

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