Passive or Active ETFs: Why Not Both?

Boston Family Advisors CIO Warren Gibbon told Barron’s that investors shouldn’t think about investments as “active or passive, but active and passive.” While he noted that passive funds have “had a number of tailwinds” over the past decade, “those tailwinds may not be as strong going forward.”

See more: Why Active Management Is Beginning to Outshine Passive Funds

While index funds have lower fees and can replicate market returns, actively managed ETFs can offer the ability to pivot if things go sideways.

“You can have better control over what quality looks like in the form of choosing an active manager,” said PNC Financial Services Asset Management Group CIO Amanda Agati.

Between June 2022 and June 2023, 57% of active ETFs outperformed their passive counterparts, up from 43% in 2022. This shift to favoring active managers is partially due to the Fed’s aggressive monetary tightening.

While passive strategies lack the flexibility to adapt to changing market environments, active ETFs can offer the potential to outperform benchmarks and indexes. Plus, active managers with greater resources and greater scope benefit from economies of scale, which can often translate to better returns.

“Active managers have the flexibility to take advantage of market volatility and add to favored positions when prices become more attractive,” said Todd Rosenbluth, head of research at VettaFi.

Designed to provide flexible solutions backed by research, prudent risk management, and experience, T. Rowe Price offers a suite of actively managed ETFs. The issuer’s active ETFs can adapt quickly to changing markets.

“Active ETFs are really starting to grow and become a more prominent part of the market,” said Tim Coyne, head of ETFs at T. Rowe Price.

For more news, information, and analysis, visit our Active ETF Channel.