Inflation is not so quietly ratcheting up. The economist group the Survey of Professional Forecasters recently projected a heady 6% inflation rate for the second quarter in the U.S. amid continued Middle East volatility and uncertainty. That inflation is more than just a cloud over U.S. economic activity, travel, and tourism this summer – it also has implications for portfolios. An active value ETF can help portfolios adapt and become more durable to take on that inflation.
Key Takeaways:
- Inflation remains a serious issue for investors to figure out right now, especially as Middle East volatility continues.
- Active management has risen in popularity just as the need for more flexible, deeper-focused funds has risen.
- TVAL presents an active value ETF option that could potentially play a diversifying role, adding durability as inflation adds portfolio pressure.
Active ETFs can compete with low cost core funds to serve as core equity allocations. At the same time, they can find firms better poised to ride out market headwinds. Consider, for example, a fund like the T. Rowe Price Value ETF (TVAL ). TVAL combines a deep, fundamental research driven investment approach with a focus on value opportunities.
The active value ETF charges a 33 basis point fee to take a bottom-up portfolio construction approach. Its target stocks are believed by the ETF’s team to have potential for outperformance while being underrated. The strategy defines value based on measures like dividend yield, undervalued assets, and restructuring opportunities. The fund also may look at cash flow, sales, and book value related to its price.
That has helped the active value ETF perform even as inflation has worsened and market fears have grown. The strategy has performed well long-term and YTD, as inflation has started to ramp up. TVAL has returned 14.2% YTD following strong longer term performance over the last 12 months. Specifically, the fund has returned 25.3% in that time.
See more: This Fundamental Active ETF Is Spiking Ahead of Key Milestone
With valuations so high, and concentration risk looming as well, TVAL can also provide a degree of diversification away from the huge AI hyperscalers. The fund does have exposure to some select tech names, but also other companies in areas like energy. Together, its adaptability, active value ETF approach, and ability to diversify away from AI concentration risk makes it a strong option to consider.
For more news, information, and analysis, visit our Active ETF Content Hub.
