With almost a quarter of 2024 already in the record books, markets are moving full steam ahead. The U.S. stock market remains resilient in the face of months and months of recessionary predictions. Now, instead, the talk has turned to the potential benefits of three or more rate cuts. For advisor clients holding cash, active ETFs may offer one strong route back into the equities space.
See more: The Magnificent Seven in 2024: Consider Active Blue Chip ETF TCHP
Yes, cash in money market funds has provided safety and some nice yields following the drastic jump in interest rates. With rates having peaked, however, and markets still offering big moments and long term opportunities, it may be time to get clients out of cash and back into the field.
For both an upside scenario and a bumpier, muddier outlook, active ETFs can provide a strong solution. First off, when looking for upside, active ETFs bring key advantages. Whereas passive strategies must stick to index tracking that can limit their flexibility and ability to outperform their benchmarks, active strategies can invest more nimbly, adapting to events and opportunities.
The ETF wrapper itself provides transparency and tax efficiency that makes active ETFs’ flexibility possible. By limiting tax events compared to active mutual funds, active ETFs can seek outperformance without incurring as many tax costs.
Of course, active ETFs could also be an option for nervous clients still holding cash. Active ETFs can adapt to bad news just as much as they can adapt to good news.
A fundamentals-driven ETF could help, for example. Should the Fed hold off on cuts, disappointing a market that had priced them in, a fundamental strategy could stand out. By seeking those firms that have leading market positions, strong balance sheets, or other positives, active ETFs can still find great investment opportunities without a macro boost like a rate cut.
T. Rowe Price offers a variety of active strategies for investors to consider. The T. Rowe Price Capital Appreciation Equity ETF (TCAF ) presents one intriguing option, seeking long term capital appreciation. For advisors working with clients holding cash, it may be time to get active.
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