As markets graze in bear country amid investor fears of an impending recession, actively managed exchange traded funds may serve portfolios well.
The S&P 500 Index is down more than 21% from its January 3 high. Meanwhile, the Dow Jones Industrial Average is off year-to-date by more than 16%, and the Nasdaq Composite has lost more than 30% so far this year.
With inflation the highest it’s been in four decades and interest rates rising, markets are expected to remain volatile. And in such a volatile market, passive ETFs may not offer protection against downside risk. They also don’t offer investors a way to seek above-average returns.
This is where active management can shine. Speaking at CNBC’s Financial Advisor Summit, Capital Group director of ETFs Holly Framsted said: “We’re in an environment, I believe, where active management is more important than ever.” Capital Group debuted its first ETFs in February, launching a suite of six active, transparent ETFs.
Since the Securities and Exchange Commission made it easier for financial firms to offer actively managed ETFs, Framsted said that this has led to an “immense number” of active managers getting into the space.
“We’re seeing increased opportunity to package active management in an ETF vehicle and deliver on the benefits of tax efficiency and liquidity,” Framsted added.
Active managers have been proving their worth these past few months. In April, 54% of the large-cap active funds outperformed their benchmark, the Russell 1000. In May, 56% beat the index — and by an average of 11 basis points.
“During the last few years, we have seen well-known, proven active managers bring their best equity and fixed income ideas into the ETF market and have success gathering assets,” said Todd Rosenbluth, head of research at VettaFi. “Advisors building portfolios using only ETFs now have access to a wide range of fundamentally based strategies.”
T. Rowe Price offers a suite of actively managed ETFs. T. Rowe Price has been in the investing business for over 80 years through conducting field research firsthand with companies, utilizing risk management, and employing a bevy of experienced portfolio managers carrying an average of 22 years of experience.
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