Most hedged equity ETFs wrap passive index exposure in options collars to manage risk, but T. Rowe Price Asset Management’s new offering takes a different route by building its strategy around an actively managed stock fund.
The T. Rowe Price Hedged Equity ETF (THEQ ) normally invests at least 80% of its net assets in equities, with the majority going to the T. Rowe Price U.S. Equity Research ETF (TSPA ), according to the fund’s prospectus. TSPA uses a team of industry-focused analysts to select individual stocks rather than tracking an index passively.
The structure aims to deliver what the firm views as a more dynamic approach to hedged equity investing. By starting with active stock selection and layering in multiple risk management tools, THEQ seeks to capture 70% to 80% of the market’s upside while experiencing only 60% of its volatility, according to T. Rowe Price.
Buffered ETFs typically cap upside potential and use a single hedging source like S&P 500 Index put options, according to insights from T. Rowe Price. By contrast, THEQ employs what the prospectus describes as a “derivatives hedging strategy designed to mitigate tail risk” that combines multiple tools.
Hedged Equity Construction
THEQ uses a derivatives hedging strategy that includes equity index futures, U.S. Treasury futures, and equity index put options, according to the prospectus. The Treasury futures component provides diversifying exposure to interest rates, which can help during market drawdowns caused by negative economic shocks, according to the insights. The equity index futures help the fund reduce overall equity exposure when needed and implement what the firm calls “managed volatility,” dynamically adjusting based on market risk levels.
According to ETF Database, THEQ launched in March 2025 and carries a net expense ratio of only 0.46%. The fund gathered $11.3 million in net flows over the past three months and posted a 3.1% return over the same period.
TSPA, which serves as THEQ’s core equity holding, manages $2.17 billion in assets and charges 0.34%, according to ETF Database. The fund seeks to create a portfolio with similar characteristics to the S&P 500 with the potential to provide excess returns relative to the index, according to its prospectus. Over the past year, TSPA attracted $780.1 million in inflows and returned 18.4%, according to ETF Database.
Sean McWilliams serves as portfolio manager for THEQ, according to the fund’s prospectus.
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