Why It's Time to Add Equities Exposure in Active ETFs

Investors are used to a swirling mass of scary headlines and geopolitical and monetary risk. Yen carry trade and yield concerns, however, may have some feeling of trepidation. Despite those risks, equities continue to appeal. Indeed, T. Rowe Price’s Asset Allocation Committee recently moved to an overweight in equities relative to bonds, boosting the case for exposure in active equities ETFs like the T. Rowe Price U.S. Equity Research ETF (TSPA).

A piece by T. Rowe Price Capital Markets Strategist Tim Murray explored that recent shift towards an equities overweight. In his analysis, Murray explained the reasoning behind the allocation committee’s move. He cited strong earnings, broadening growth signals, and stable valuations as factors undergirding the appeal.

At the same time, he noted that earnings growth has displayed notable breadth. Areas outside of the AI zeitgeist are seeing growth projections without seeing valuations overheat. Murray identified valuations as “surprisingly disciplined.”

“In fact, the two areas with the strongest expected earnings growth—U.S. large‑cap growth and emerging markets—have actually seen their valuation multiples decline modestly,” he said.

Investors, then, may want to consider ways to expand their equities exposure as opportunities broaden. One way to do so is through active ETFs like the TSPA. The fund charges a 34 basis point fee for an active, research-driven approach to broad market exposure. The strategy has returned 12.8% YTD, and could prove a solid active ETF candidate.

Where passive mutual funds must track their indexes precisely, TSPA's more flexible approach has the ability to overweight or underweight holdings, while also adding additional names beyond the index. What’s more, ETFs offer some notable tax advantages. With TSPA’s remit to pursue performance, it may make a solid satellite option for a broadening market.