With the Fed raising rates once again, and further rates possible, investors may be looking for the next steps. The U.S. economy has so far proven very durable when faced with both inflation and recession risk, but a soft landing isn’t guaranteed. For those investors who may want to take their diversification abroad, active international ETFs may be worth considering. An ETF like the T. Rowe Price International Equity ETF (TOUS) stands out as an example of the type of active strategy that can help navigate foreign equities.
Why take an active approach to foreign equities? While indexed strategies rely on an investing-by-committee approach, active management adapts more quickly. That matters domestically, of course, but can be crucial when investing in a major market like China or Latin America where key data points can be harder to find. Active international ETFs bring to bear managers with expertise in foreign markets and who know what to look for while investing therein.
For more on active ETFs: “Investors to Up Active ETF Allocations in ’24, ’25”
Active strategies already lean on screens, but screening abroad can be even more challenging. That’s why local knowledge matters. For example, consider if politicians in a foreign country want to nationalize firms in an important industry. In that case, active management would see that coming likely sooner than a passive fund’s team would.
That’s how active international ETFs like TOUS can boost a portfolio. TOUS has seen its flows spike over the last month, adding $25.3 million in that time. The strategy will typically hold a portfolio of about 150 stocks that meet its quality, earnings potential, and valuation screens. Its management team asses both local market inputs and macro conditions with a fundamental bottom-up approach. It retains broad discretion in investing across the market cap spectrum, as well.
The ETF only recently launched in mid-June but is able to rely on T. Rowe Price’s experience and resources as one of the industry’s more tenured global asset management firms. That’s helped the strategy return 4.6% over the last month, outperforming both its ETF Database Category and Factset Segment averages. TOUS currently weights Japan, the United Kingdom, and France as its three highest-weighted sources of investments. Finance, health, and electronic technology, meanwhile, comprise its three largest-weighted sectors.
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