Active ETF investing has had a big year so far, but it can still play a big role in closing out 2023. International equity ETFs can really benefit from active investing. With a strong case for international equities brewing, now may be the time to look closer.
Why look abroad for equities right now? The market seems to be shifting, especially as the U.S. rate cycle appears to be ending. The dollar has strengthened considerably while the Fed has pushed rates up, impacting foreign markets. An end to those hikes and perhaps even future cuts on the horizon could boost the case for foreign equities.
What’s more, in the U.S., the impact of those hikes looms over the economy. Rate hike impacts tend to lag the initial rise by a few months, with lending particularly slow at digesting hikes. Along with a still top-heavy, expensive S&P 500, may see U.S.-based investors begin to look abroad.
Those that do would do well to lean on an active ETF approach. Investing actively with international equity ETFs brings certain notable advantages. Active managers lend their significant expertise and years of experience to foreign markets, which investors themselves may not understand as well. Similarly, in a global, 24-hour news cycle, active managers can adapt quickly.
However, the biggest role active ETFs can play may be in diversified international equity ETFs even more than in single-nation strategies. Active strategies considering fundamentals in choosing stocks can be some of the best strategies available in the ETF landscape. However, single-nation ETFs can limit the available pool of stocks for active managers to consider. For example, a broader international equity ETF with a bigger stock universe can get more out of an active strategy than from a simple index.
T. Rowe Price has a suite of active ETFs to consider. That roster includes strategies like the T. Rowe Price International Equity ETF (TOUS) backed by the firms’ decades of international investing expertise.
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