In a sea of active ETF launches in the last two years, T. Rowe Price continues to bring strategies to market that resonate for investors. Such is the case with the T. Rowe Price Capital Appreciation Equity ETF (TCAF), which recently crossed its two-year anniversary and $5 billion in AUM.
The current environment appears favorable for actively managed strategies, given ongoing volatility and changing asset class trends. As tides shift, relying on a strategy built on fundamental research could provide a number of benefits for portfolios. In addition to the potential diversification compared to passive peers, an actively managed ETF may help investors curtail exposures to underperforming companies.
Launched June 14, 2023, TCAF seeks long-term capital growth. The ETF may purchase the stocks of companies of any size, but typically focuses on large U.S. companies. It’s an active strategy in the truest sense of the word, using bottom-up individual security research to construct the portfolio. The strategy is one that has resonated with investors, crossing the $5 billion AUM threshold in July.
TCAF Managers Use GARP Investing Approach
When building the portfolio, the PMs base its construction primarily on the merits of the companies themselves instead of screening for factors like growth or value. The resulting growth at a reasonable price (GARP) approach is one that’s served investors well since launch.
TCAF’s portfolio managers select securities based on several potential factors. These include companies with experienced management at the helm and companies with the potential for notable risk-adjusted returns. The PMs may also select companies with attractive valuations compared to the company’s own historical performance, or its industry. Finally, companies actively growing their market share, at the head of their market, or those with a proprietary advantage may be considered for inclusion.
It’s a strategy that centers on individual stock potential and merits as opposed to one driven by market or economic trends and cycles. While top allocations in the portfolio include familiar names like Microsoft and Nvidia, it also includes lesser-known Roper Technologies Inc, and PTC Inc. The former creates and builds vertical software and technology-enabled products in “defensible niche markets” according to the company’s website. Meanwhile, the latter is a software and services company that enables the digital transformation of manufacturing companies like Volvo and Polaris.
TCAF is also competitively priced for an active strategy, with an expense ratio of 0.31%.
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