After almost a full calendar year of anticipation, the Fed finally made a move and announced a rate cut of 50 bps. Long awaited, it’s still to be seen how the market will ultimately react in the coming weeks or months—but it could mark an opportunity for active value investing.
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An active value investing approach can find significant underrated opportunities that could greatly benefit from rate cuts. Firms that fit a value view often have solid fundamentals and underlying data and can use cheaper borrowing to boost their growth. Such a rate cut boost could then reevaluate those same names’ standing in the market.
Active Value ETF TVAL's Approach
With the Fed announcing rate cuts of 50 bps, it may be worth adding an active value exposure via an ETF. The T. Rowe Price Value ETF (TVAL ), for example, may appeal as an option. Charging a relatively low fee for active ETFs at 33 bps, TVAL has more than a year of track record to consider. Since its launch, the active value of ETF has returned 19.7%, beating its benchmark of 14.5% at that time.
TVAL seeks long-term capital growth through fundamental research and active, bottom-up stock selection. The fund defines its value screen by metrics appropriate for each firm, such as undervalued assets, dividend yield, and more. More broadly, its managers consider book value, sales, cash flow, and other factors in picking firms.
With names offering potential outperformance in TVAL’s holdings, it could present a strong option to end the year. Riding a rate cut, the fund presents an intriguing overlay to add to a core portfolio.
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