Building a portfolio from scratch, or looking to refresh one that needs an overhaul? Core funds provide the bedrock upon which overall portfolios are constructed. Historically, that has meant large, long-term mutual funds tracking important indexes. Increasingly, actively managed ETFs are taking over core portfolio allocations.
Key Takeaways:
- Active ETF launches have grown in recent years, helping drive overall ETF proliferation.
- Many such active ETFs are arriving with lower fees, like TACU and TACN, low-tracking-error active core strategies.
- Such ETFs can provide helpful complements or even play a solo role as core allocations in portfolio construction.
Active ETFs have not only made up a large part of accelerating overall ETF launches in recent years, but also gathered some serious assets. As competition has grown among active funds and new active ETFs have arrived, they’ve increasingly been able to compete for core placement. Here are three reasons why — and why they might help your portfolio, too.
Active ETF Fees Are Dropping
Two new active core ETFs from T. Rowe Price offer a strong example of falling active fees. The T. Rowe Price Active Core U.S. Equity ETF (TACU) and the T. Rowe Price Active Core International Equity ETF (TACN) both currently charge zero basis points basis points (bps) due to a fee waiver. Even after the waiver expires in January 2027, they still only charge 14 and 20 bps respectively. Launched recently, they represent that trend of greater fee competition among funds.
Active ETFs Offer Key Flexibility
Core holdings often rely heavily on broad indexes, offering market cap-based exposure. While that may seem to help in a steady market, it can also leave investors overexposed to just a few names.
For example, the big names like Nvidia (NVDA), Microsoft (MSFT) and Amazon (AMZN) have played an outsized role in portfolios for several years now. Countless investors are already heavily exposed to them. Active ETFs that construct portfolios from the bottom up may pick those names, but they can also quickly adjust if they struggle or even find other potential up and comers.
See more: Active ETF TSPA Doubles AUM YTD Amid Growing Attention
Both TACU and TACN combine fundamental and quantitative research capabilities to help guide investments. So, when those names perform, they can participate — but when companies struggle, they can adapt more quickly. Additionally, TACN’s international exposure can help the fund diversify portfolios away from big tech.
Active ETFs Complement Passive Holdings
Passive funds aren’t going anywhere. They remain an important part of the overall investment picture. However, rather than stacking passive funds, adding active management can provide a meaningful complement.
The market has been hot of late, thanks to AI. But in times when returns are a bit more stale, adding research-based, active stock selection can find potential standout stocks. At the same time, with ETF adaptability, investors can swap out one ETF core holding for another as needed. Together, funds like TACU and TACN, currently charging a zero-bps fee, may be worth dipping into.
For more news, information, and analysis, visit our Active ETF Content Hub.
