Trillions of dollars are sitting on the sidelines right now, parked in cash and money market funds. Asset managers, of course, yearn for investors to get that money back into equities and bonds, preferably via their own strategies. Should the Fed decide to cut rates, that may be the moment those trillions start to come back into play. For investors considering that step, it may be worth looking to active investing and active strategies as a solution.
Active investing had a banner year in 2023, as significant flows plowed into active ETFs despite their relatively small AUM compared to their passive counterparts. Active ETFs have ballooned since the 2019 ETF rule was implemented, easing investors’ access to ETFs’ signature tax efficiencies.
Should investors be getting FOMO about cash and its limited returns, active could really appeal. Active provides a variety of benefits, but strategically, active ETFs’ ability to mitigate volatility and to seek outperformance stand out.
Active Investing Via ETFs
Strategies with an active approach can outdo their passive counterparts in both of those departments. An actively managed fund can, for example, adapt more quickly to a potential run of disappointing economic news than a passive ETF can. That can be a big source of comfort for investors who are curious about moving off of cash, but are a bit nervous.
At the same time, active investing may tempt those same managers because of the potential for outperformance. Total return active ETFs, for example, have the freedom to augment a fundamentals-driven equities or bond strategy with dips into other areas that can add current income, for example.
Perhaps most significantly relative to their passive peers, active ETFs are coming down in price. Some of the biggest strategies in the active ETF landscape are now getting closer to their passive peers.
That addresses one of the more notable criticisms of active strategies: that they cost significantly more than simpler, less adaptable passives. Increasing availability of active investing stands out as a boon for investors looking to get cash on the sidelines, with active strategies from T. Rowe Price a offering some intriguing options.
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