Active investing has grown in popularity over the last two years, as measured by ETF flows and the growing AUM of active ETFs. That said, the past is past, so what is the outlook for active investing moving forward? T. Rowe Price’s midyear outlook update points to a changing market environment that could benefit active investing even more.
See more: T. Rowe Price Research Leader Jay Nogueira on 2024’s Outlook
According to the firm’s updated outlook, investors are facing the end of a period of index concentration boosted by the post-Global Financial Crisis era of low rates and high liquidity. High rates, with higher for longer now looking like the dominant regime and framework, may create greater dispersion and more volatility in bonds, for example.
For equities, too, a decline of blanket, broad index concentration (though passive investing will continue to play a leading role) presents opportunities for active investing. Active can get more out of factors like small-cap or value investing. Per T. Rowe Price, active overall tends to step up following periods of index concentration. That doesn’t just apply to domestic investments, either. Foreign equities present inherent dispersion that active can continue to exploit for performance.
What kind of strategies, then, may appeal given that outlook from T. Rowe Price and its research capabilities? For international equities, an ETF like the T. Rowe Price International Equity ETF (TOUS ) offers one intriguing option. Though it launched just over a year ago, it has returned nearly 11% for its market price per T. Rowe Price. Domestically, a strategy like the T. Rowe Price U.S. Equity Research ETF (TSPA ) leans heavily into research to identify firms that may appeal.
Investors have many options out there, and passive investing will remain an important part of many portfolios. Active, however, can play a bigger and bigger role given the changing market outlook, with ETFs like TSPA and TOUS just two options in a growing pool.
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