Active investing has come on in leaps and bounds in recent years. Since the arrival of the ETF rule in 2019, which made creating ETFs easier, active ETFs have blossomed. Active ETF AUM and launches have both grown massively, with new investors and issuers adopting the wrapper all the time. Active ETFs offer particular benefits when investing in specific segments of the market in both equities and fixed income. In the former, for example, active ETFs can offer some powerful benefits when looking at small- and midcap stocks.
See more: 3 Reasons to Consider Active ETF TOUS in Tariff Sell-Off
What role can active ETFs play in those spaces? Many U.S. investors have significant weights to large-caps. In fact, prior to tariffs hitting investors and markets, the big story entering 2025 was looming concentration risk. Just a handful of firms played an outsized role in market performance last year. With so many investors perhaps overexposed to large-caps, small- and midcap stocks can appeal.
That’s where active ETFs come in. Active managers can help closely scrutinize and identify the firms best positioned to do well amid market volatility. At the same time, active management empowers an ETF’s managers to adapt to big market events. Tariffs, for example, could stand out as an example of the type of market trend or event that may require some flexibility.
The T. Rowe Price Small-Mid Cap ETF (TMSL ) provides a strong example. The strategy, which charges a competitive 55 basis point fee, actively invests in small- and midcap stocks with either growth or value characteristics. Applying a bottom-up portfolio construction approach, the fund leans on T. Rowe Price’s fundamental research capabilities. It scrutinizes firms in those categories for metrics like profitability, earnings quality, return on equity, and more.
That has helped the active ETF deliver an average annualized return of 12.16% since inception as of March 31, per T. Rowe Price data. The firm also recently released new research on small- and midcap stocks and how to use active ETFs to invest. For those looking to refresh portfolios, a fund like TMSL could provide a compelling opportunity.
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