2024 produced significant returns for investors, with the S&P 500 returning 25% from January 1, 2024, to December 31, 2024. With that positive news, however, many investors have worried that market froth may require moving away from growthier offerings. Valuations are very high, with just a handful of expensive firms contributing massively to 2024’s returns. Active growth investing stood out in 2024 as a way to play that market growth, but can it produce again in 2025 amid that froth?
See more: 3 Takeaways From T. Rowe Price’s Top-Performing Active ETFs of 2024
The T. Rowe Price Growth ETF (TGRT ) offers a useful example to consider. It returned 32.85% in 2024, per T. Rowe Price data. Charging only 38 basis points, the active strategy invests in large-cap U.S. firms believed to have strong growth upside.
TGRT leans on fundamental research to identify those firms, taking an active, bottom-up approach to portfolio construction. Specifically, it seeks companies with metrics such as sustainable earnings momentum, above-average rate of earnings, and the ability to expand even during economic downturns.
Active Growth Investing in 2025
Considering all of that, does a growth-focused approach make sense in 2025? For one, an active growth investing approach can outperform passive funds if market froth poses an issue. Should, for example, a big downturn in tech impact broad growth indexes and broad market indexes as a whole, an active growth investing approach can adjust.
A fundamentals-driven approach may already under-weighted or steered clear of the frothiest areas. A fund like that can also adjust to events like changes in the Fed’s rate policies.
Of course, perhaps the more important question is whether market froth is actually excessive. Recent analysis from T. Rowe Price’s Head of Global Multi-Asset and CIO Sebastien Page and his colleagues explored whether high-profit margins for growth firms “justify” high valuations.
Exploring profit margins compared to firms’ relative valuations based on price-to-earnings data, the analysis found a case for a continued moderate, risk-on approach. Page identified valuations as high, but not as high as during the tech bubble, while earnings growth is accelerating and market return on equity is near all-time highs.
Taken together, that outlook and TGRT’s active growth investing approach can encourage investors to take a new approach this year. With rate cuts filtering through the financial system, too, now could be the time to consider an ETF like TGRT.
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