THIS IS "ETF IQ" WITH KATIE GREIFELD AND SCARLET FU. WE EXPLORE THE SHIFTING DYNAMICS OF PASSIVE VERSUS ACTIVE INVESTING. ACROSS ASSET CLASSES, METALS ARE FALLING AS THE WAR WITH IRAN INCREASES THE RISK OF DAMAGE TO THE GLOBAL ECONOMY.JOINING US NOW IS TODD SOHN, ETF STRATEGIST. EVERYONE WAS PILING INTO GOLD, SILVER, COPPER, AND NOW WE HAVE THE WAR IN IRAN AND IT IS A COMPLETE DIFFERENT STORY. WHERE MOST PEOPLE EXPOSED TO METALS THROUGH PASSIVE VEHICLES OR ACTIVELY PICKING WINNERS AND LOSERS.TODD: MOST WERE ...

Core Insights - Rising oil prices create investment opportunities despite market volatility, with certain companies positioned to benefit from these conditions [1] - A structural portfolio shift from passive to active core equities is recommended to enhance durability and potential upside [2] Investment Strategies - T. Rowe Price Active Core U.S. Equity ETF (TACU) and Active Core International Equity ETF (TACN) are highlighted as foundational investment options, both currently offering a 0% expense ratio until January 30, 2027, and competitive rates thereafter [3] - TACU focuses on U.S. large caps using a combination of fundamental research and quantitative models, aiming for returns similar to the Russell 1000 Index while allowing for active management advantages [4] - TACN provides international equity exposure with a similar strategy to TACU, designed to align with the EAFE Index (Net) while seeking additional returns [5] Market Conditions - The current environment of rising oil prices is expected to introduce short-term volatility, making active investing a more effective strategy compared to traditional equity swaps [6]

Core Viewpoint - The ongoing U.S.-Iran War has significantly impacted market predictions for 2026, leading to increased volatility and prompting investors to reassess their portfolio strategies [1] Group 1: Market Volatility and Active Investing - The U.S.-Iran War and previous U.S. intervention in Venezuela have contributed to heightened market volatility, making active investing a more attractive option for investors [1] - Active ETFs offer flexibility to adjust holdings in response to geopolitical events, unlike passive funds that must adhere strictly to their indices [1] - Active funds leverage fundamental research to identify investment opportunities in both domestic and foreign equities, which can be beneficial during turbulent market conditions [1] Group 2: Investment Opportunities - Sectors such as defense and energy may present new opportunities, while technology, particularly AI-related tech, could face challenges this year [1] - The T. Rowe Price Value ETF (TVAL) exemplifies an active fund that focuses on value stocks, which may be undervalued and more resilient during periods of increased volatility [1] - The tradability of active ETFs allows investors to adjust their exposure dynamically, enhancing their ability to navigate market fluctuations [1]

Core Insights - Active ETFs have surpassed $2 trillion in global assets under management (AUM) as of January 2026, marking a significant milestone in the industry [1] - The active ETF sector experienced record net inflows of approximately $76 billion in January, significantly higher than the inflows of $51.7 billion in January 2025 and $24.7 billion in January 2024 [1] - The number of actively managed ETFs globally reached 4,747, with 674 providers listed on 46 exchanges across 36 countries by the end of January [1] Market Performance - The S&P 500 index increased by 1.45% in January, while developed markets excluding the U.S. rose by 6.15%, with Korea and Luxembourg showing the highest gains at 26.73% and 18.64% respectively [1] - Emerging markets saw a 5.50% increase in January, led by Peru at 26.23% and Colombia at 23.24% [1] Factors Driving Growth - The growth of active ETFs is attributed to their flexibility in adapting to market volatility and their ability to outperform market cap-weighted passive indexes during strong growth periods [1] - Increased inflows indicate a growing interest from investors in the flexibility offered by active ETFs, especially in light of geopolitical risks and U.S.-based concentration and policy risks [1] - Notable funds like the T. Rowe Price Blue Chip Growth ETF (TCHP) have demonstrated strong performance, returning 29% over the last three years, highlighting the potential for active ETFs to play a larger role in investment portfolios [1]

Core Insights - Active managers in ETFs and mutual funds struggled to outperform passive peers in 2025, with only 38% achieving this, a 4% decline from the previous year [1] - Long-term performance is concerning, with just 21% of active funds outpacing passive funds over a 10-year period ending in 2025 [1] - International equities showed better performance, with active managers achieving a 48% success rate, and emerging markets leading at 64% [1] Active Management Performance - In 2025, active managers in U.S. stocks had a 37% success rate, down 1% from the previous year, while small-cap stock pickers performed slightly better at 38% [1] - Active bond managers faced a significant decline, with only a 40% success rate, a drop of 24% from the previous year, and corporate bond funds saw a mere 4% success rate, down 63% [1] - Despite short-term challenges, active fixed income management remains appealing, with 42% of managers outperforming passive funds over the long term [1] Investor Behavior and Market Trends - Investors are increasingly looking for international opportunities as U.S. stock valuations appear high, leading to strong flows into international equity ETFs [1] - The report indicates that the average dollar invested in active funds outperformed the average active fund in 17 of 20 categories examined, suggesting a demand for higher quality investments [1] - Morningstar cautions against prematurely declaring passive investing as the winner, noting that active fund performance varies significantly across categories and time periods [1]

Core Insights - Global yields are expected to rise in 2026 due to various market challenges and a competition for capital [1] - Active investing strategies can help investors navigate the changing yield landscape and enhance fixed income allocations [1] Group 1: Factors Driving Yields - A global competition for capital is contributing to higher yields this year [1] - Continued government debt sales to finance deficit spending are steepening the yield curve [1] - The influx of artificial intelligence-related debt supply is leading to an increase in new bond issuance, which is higher than previously anticipated [1] Group 2: Investment Opportunities - A healthy growth environment presents notable credit opportunities for investors [1] - Emerging markets debt may also offer potential investment opportunities [1] - Active managers can provide better scrutiny of individual debt issuers, which is crucial for identifying durable issuers in the credit market [1] Group 3: Active Investing Strategies - Active investing can adapt to the shifting yield curve and key market events [1] - Funds like the T. Rowe Price U.S. High Yield ETF (THYF) provide targeted, active bond exposure in high yield [1] - Flexibility in portfolios is essential for adapting to a changing yield curve, making active strategies appealing [1]

Core Insights - Active bond ETFs are experiencing significant growth, driven by increased demand for active management in fixed income investments [1] - The T. Rowe Price QM U.S. Bond ETF (TAGG) has seen substantial inflows, adding $283 million YTD, bringing its assets under management (AUM) to $1.8 billion as of February 17 [1] - TAGG has outperformed its benchmark and the average return of its category, achieving an 8.3% return over the last twelve months compared to the average's 7.3% [1] Active Bond ETFs Growth - The rise in active bond ETFs is attributed to ongoing uncertainty in the bond market, with investors seeking solid yields amid concerns regarding Federal Reserve independence, dollar weakness, and rising U.S. debt [1] - TAGG actively invests in a diverse range of debt securities, including investment-grade corporate and government debt, mortgage and asset-backed securities, and U.S. dollar-issued foreign debt [1] - The fund employs both fundamental and quantitative research to identify potential investments, contributing to its recent performance [1] Performance Metrics - As of January 31, TAGG offered a yield to maturity rate of 4.46% [1] - The fund's strategy has proven effective, outperforming the Total Bond Market ETF Database Category average on both a year-to-date and one-year basis [1]

Core Viewpoint - Energy stocks are experiencing a strong start to 2026 due to various factors such as increased data center energy demand and deregulation, making them appealing for investment [1] Group 1: Performance of Active ETFs - The T. Rowe Price Natural Resources ETF (TURF) has achieved a 13% return in early 2026 and a 23.2% return over the last three months, indicating strong performance [1] - TURF employs a fundamental research strategy to identify and invest in stocks related to natural resources, despite being a relatively new ETF launched in June of the previous year [1] Group 2: Investment Strategy - TURF actively invests in companies involved in the upstream extraction of minerals, agriculture, and energy products, focusing primarily on firms within the MSCI GICS natural resources sector [1] - The ETF's bottom-up approach allows for investment in companies of any market cap based on growth or value perspectives, adhering to expected sector and fundamental standards [1] Group 3: Market Risks - Geopolitical factors, particularly the U.S. attack on Venezuela, pose risks to energy prices and may introduce volatility in the market, although they could also unlock future potential for the sector [1] - Active management in TURF may provide an advantage over passive rivals in navigating these geopolitical events [1]

Core Insights - The active tech ETF TTEQ is signaling a buy as it concludes a strong year, making it an attractive option for investors looking to refresh their tech holdings for 2026 [1] - TTEQ has achieved a 21% return over the past year and crossed the $100 million AUM mark recently, indicating strong performance and investor interest [1] Performance Metrics - As of December 26th, TTEQ's price was $32.89, above its 50 and 200-day Simple Moving Averages (SMAs), suggesting positive momentum [1] - The fund's Relative Strength Index (RSI) indicates it is not in "Overbought" territory, providing a favorable entry point for investors [1] Investment Strategy - TTEQ employs a bottom-up portfolio construction approach, focusing on innovative firms that are expected to disrupt their sectors and are essential to global technology infrastructure [1] - Unlike passive index funds that may carry concentration risk, TTEQ offers fundamentals-driven exposure to emerging tech companies [1] Unique Features - The fund has the flexibility to invest in AI technologies, exemplified by its recent investment in OpenAI, and can adjust its strategy based on market conditions [1] - TTEQ is positioned as a long-term satellite strategy, making it a compelling addition for investors in the crowded tech space [1]

Core Insights - Active bond ETFs are positioned to address the challenges posed by global financial uncertainty and geopolitical conflicts, providing a flexible investment option for investors [1] - The T. Rowe Price QM U.S. Bond ETF (TAGG) has seen significant net inflows, totaling over $250 million in the last month, indicating strong investor interest [1] - TAGG aims to outperform the Bloomberg U.S. Aggregate Bond Index while maintaining similar exposure and portfolio characteristics, utilizing both fundamental analysis and quantitative research [1] Active Bond ETFs - Active bond ETFs have gained popularity since the ETF rule changes in 2019, offering advantages over passive index-based ETFs and mutual funds [1] - These ETFs provide tax efficiency, adaptability, and the ability to quickly replace bonds that are called early or face default, unlike passive funds [1] - TAGG has grown to over $1.7 billion in assets under management (AUM) and has outperformed its category average over the past year [1]