Who’s afraid of tariffs? Broad market indexes don’t seem spooked by them yet, but their specter still looms over investors. The new administration touted potential 25% tariffs on automobiles, chips, drugs and lumber this week. That follows prior discussion of 25% tariffs on steel and aluminum. What should investors and advisors make of that news? The fluid nature of the situation may speak to the case for active investing, with active ETFs offering important adaptability and flexibility.
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What impact might the above tariffs have? As input goods, materials like steel, aluminum, and lumber drive whole segments of the economy. For food companies, canned goods often require aluminum. Construction companies of course need lumber, while steel is needed for numerous technological, automotive, and construction businesses. Tariffs on chips may be the most impactful, potentially raising the cost of computers and certainly impacting the major tech firms driving markets forward.
Active Investing as Tariffs Loom
Companies can, of course, pass those costs on to consumers, but that comes with its own consequences. What’s important for investors scanning key industries is to identify those firms best positioned to adapt to those tariffs with as little impact as possible.
That’s how active investing can help. Applying fundamental research, active investing strategies can identify those companies best-positioned to ride out an initial wave of large tariffs. What’s more, active funds can also adjust their holdings more quickly than passive funds can should those tariffs come to pass. That provides an important degree of preparation and adaptability that can really help portfolios in a complicated investing landscape.
The T. Rowe Price Capital Appreciation Equity Fund (TCAF ) provides one notable active ETF option in the year ahead. Managed by experienced fund leader David Giroux, the ETF focuses mostly on larger U.S. firms, and an active approach could make it an option to consider.
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