The rate-cut story looks better and better, seemingly by the week. While markets are not in the business of locked-in future predictions, many investor eyes are locked on the potential for cuts. With Fed leaders speaking to the case for cuts and the yield curve sending some positive signals, it may be worth taking a specific look at small- and mid-cap stocks. One specific SMID-cap ETF is outperforming right now and offers a particular approach that might set it apart from other strategies in that category.
See more: Active ETFs to Hit $4 Trillion AUM by 2030? What You Need to Know
That fund, the T. Rowe Price Small-Mid Cap ETF (TMSL ), takes an active approach to smaller firms. The active ETF charges only a 55 basis point fee to invest in smaller companies. The strategy spans both growth or value characteristics when looking at opportunities and evaluating firms based on factors like profitability, earnings quality, and more.
The Merits of an Active Small-Caps ETF
TMSL’s active approach can help it stand out most, however. Already drawing on T. Rowe Price’s research prowess, the strategy can avoid some stocks, like non-earning small companies, that passive small-caps funds must hold. The ETF’s active strategy retains a level of flexibility regarding macro factors and individual firms’ outlooks sufficient to help it outperform.
That’s what has happened in recent months. TMSL has returned 18.4% over one year, per T. Rowe Price data. That compares well to its benchmark’s return of just 10.5% in the same time period. Since inception, the active strategy has averaged even better, delivering annualized returns of 20.3% compared to 11.7% for its benchmark.
Active investing can help those looking to add different exposures to their portfolio this fall. For those seeking to outperform passive funds in the small- mid-cap space when rate cuts hit, TMSL could be positioned to help.
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