Once again, parties in Congress are once again at odds over extending funding for the U.S. government. Reflecting the ongoing dysfunction of the government’s legislative branch as seen in the Speaker debacle earlier this year, the parties remain some distance away from a deal. Shutdowns have broad implications not only for public sector functions but also for the overall economy. Should a government shutdown impact stocks as well, investors may want to look to active investing’s ability to respond.
How would a government shutdown impact stocks? Research has shown that during shutdowns, the S&P 500 saw a 2% median drop. Perhaps more than any other factor, fear tends to drive most market reaction to a shutdown. Rather than direct connections like consumers losing out on government payments, shutdown drop-offs likely owe more to investor fear of fiscal policymaking tools breaking. Regardless, government shutdowns are not good news for markets or the overall economy.
See more: “Active ETFs Outperformed Passive Funds in 1H 2023”
How then, should investors respond to rumors of a shutdown? Active ETFs may present one strong option. Rather than require an investment committee to meet and decide on investing moves, active managers can respond much more quickly. Active ETFs don’t face the same requirements to track an index, instead able to move even intraday. That not only allows them to swerve stocks that might take the biggest hits in a shutdown but also to outperform more staid indexes.
Active strategies may come with a reputation for expensive fees, too, but not all charge fees in the 70, 80, or 90 basis point range. Some charge fees much closer to their passive rivals which could make them an appealing tool for a shutdown as well as rising rates and other uncertain situations. Should a government shutdown impact stocks, they could also play a role.
T. Rowe Price offers a roster of actively managed ETFs that could be worth considering for curious managers. That suite includes funds like the T. Rowe Price Growth Stock ETF (TGRW).
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