(Baltimore Business Journal) - T. Rowe Price Group Inc. is continuing to lean into the fastest-growing area of its business right now, exchange-traded funds, as the company will add five more ETFs by the end of the year.
T. Rowe (Nasdaq: TROW) will soon offer a total of 15 ETFs after the company announced it has filed final registration statements with the U.S. Securities and Exchange Commission for five new active equity ETFs. The Baltimore-based money manager has been extremely active in this area, recently passing the $1 billion mark in ETF assets after only being in the space for three years. Even as the company lost 25% of its assets under management in 2022 due to outflows, Tim Coyne, the company’s global head of ETFs, said the company’s ETFs have seen inflows. T. Rowe’s dividend growth ETF and blue chip growth ETF led all funds in terms of inflows in 2022.
“If you look at outflows in mutual funds and then you contrast that with what's happening in ETFs, it's almost like an equal outflow and inflow between those funds,” Coyne said. “I think there's a broader understanding and recognition of ETFs as an investment vehicle and some of the benefits that are associated with that.”
ETFs are funds that have a collection of assets like an index fund. ETFs differ from index funds however as they can be traded like stocks. While ETFs were initially thought of as passive investment vehicles, T. Rowe has leaned into actively managed ETFs. The company's ETFs mostly mirror its mutual funds and use the same strategies, according to Coyne. It can take multiple days to buy and sell securities for T. Rowe’s mutual funds, but ETF trading is much quicker. Coyne said the ETFs could show what mutual funds are going to do, so T. Rowe has semi-transparent ETFs where they disclose some information on the portfolio holdings on a daily basis.
One of T. Rowe’s new ETFs, its Capital Appreciation Equity ETF fund, will be managed by David Giroux. The other four ETF funds — its value ETF, growth ETF, international ETF and small-mid cap ETF — will be team managed, with Jodi Love as the lead portfolio manager.
ETFs are currently a “very small” portion of T. Rowe’s overall asset strategy, but Coyne said the funds are only becoming “more and more important to our offerings.” Coyne said he has seen figures that show $480 billion in active ETF assets overall, and that projections have shown that the active ETF market could grow to anywhere between $1 trillion to $2 trillion over the next five years. A big part of the growth is coming from large institutional investors that are finally taking this space seriously.
“So you can kind of see that foundation being built right now for the active and large quality investment managers like T. Rowe Price and some of our competitors, who are launching ETFs in a significant way,” Coyne said. “So, I think you are going to see this growth and continued adoption.”
As millennials continue to age and accumulate wealth, Coyne said institutional investors have had to change their strategies to meet the wants and needs of that generation. According to a Charles Schwab study, 60% of millennials said “they expect ETFs will be the primary investment vehicle for their portfolio in the future.” Coyne said he has seen studies where 90% of millennials identify ETFs as their vehicle of choice.
The only thing slowing ETF growth down, according to Coyne, is that the supply of ETFs has not been able to keep up with demand. Coyne said it took a team of 300 employees over two years to set up the company’s ETFs, but now the team has hit its groove and will continue to launch new funds.
“Looking forward, we are going to continue to evaluate and develop strategies for the ETFs. The way we started was to look at core categories, and then from there as we expand core category offerings we will look at other things, more satellite strategies like impact investing and ESGs too,” Coyne said.
By Garrett Dvorkin
