With just over 11 weeks left in 2023, investors may want to look a bit deeper at their portfolios. In a year in which active strategies have done so well via allocator interest, as well as with their own returns, an active ETF could make a very good addition. Yes, active ETFs offer adaptability and the ability to respond to events. However, they can also be long-term investing tools, combining responsiveness in uncertain markets with a coherent long-term plan.
But let’s not look too far past how an active ETF can respond to uncertainty. Rising rates have been a key headwind in markets this year already, but we have likely not yet seen the full impact of those hikes. Credit markets must “metabolize” rate hikes as loans turn over, and firms, homeowners, and individuals roll into debt with higher rates. Rising rates aren’t the only headwind, but with higher-for-longer rates looking almost certain, they’re a big factor. Equity markets also need to adapt to new higher-rate environments, along with inflation and other economic pressures.
An active ETF can look for securities well-positioned to adapt to a rising rate environment, true. Yet, investors may also want to consider an active strategy with a long-term view. Investors may assume that indexed strategies alone provide long-term growth opportunities. Active strategies can compound a manager’s expertise and ability to outperform simple indexes over a long period of time.
Consider, for example, the (TCAF ). The fund is managed by notable manager David Giroux, well-known for running the popular T. Rowe Price Capital Appreciation Fund (PRWCX). Where the mutual fund run by Giroux is composed of both stocks and bonds, the new TCAF ETF is an all-equity portfolio. TCAF actively invests in high-quality large-cap stocks in the U.S. The active strategy’s main goal is capital appreciation, looking for firms with experienced management, a track record of attractive valuations, and a high potential for risk-adjusted returns.
Launched in June, TCAF charges only 31 basis points (bps), which is inexpensive for a research-driven, actively managed portfolio. It has already gained more than $250 million in AUM. Outperforming its ETF Database Category and FactSet Segment averages since then, it could be an ETF to watch entering 2024.
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