August has come and with it comes concern about the “September Effect.” For nearly a century, stocks have consistently performed worst in September. The S&P 500 has lost an average of 1.1% going all the way back to 1928. Thay normally wouldn’t pose a significant issue given that it happens every year, but the Effect could be the push a creaking market needs. That may present an opportunity for active ETFs to stand out given their adaptability, creative strategies, and managerial expertise.
No real reason stands out for why the September Effect exists, but it may owe to the lack of earnings or other consistent opportunities for good news. It leaves markets vulnerable to perhaps even overreacting to macro events or data. That may be particularly harmful in a year in which the Fed has dominated headlines, with persistent inflation, and a still-lingering fear of recession.
See more: Active ETFs Outgrew Passives in 1H 2023
Indeed, valuations are still high, perhaps too high, relying heavily on five megcap tech firms to lead the way. Those firms have also created a level of concentration risk too that makes markets particularly precarious. Factors outside the U.S. economy also bear mention, as well – the Chinese economy is slowing down, while global geopolitical risk still looms.
Taken together, investors may want to take a look at the burgeoning active ETFs sector. Active ETFs come with built in strengths that passive strategies can’t match. Active managers can move quickly across various sectors, eyeing fundamentals as they go. Actively-managed strategies also sometimes employ weighting strategies other than market cap-weighting schemes. That can help mitigate a downturn caused by a given part of the market like tech.
For the September Effect, active strategies specifically could make for a worthy addition to investors’ portfolios. T. Rowe Price offers a suite of actively-managed ETFs that may be worth taking a look at. That roster includes ETFs like the T. Rowe Price U.S. Equity Research ETF (TSPA ), for example.
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