T. Rowe Price Small-Mid Cap ETF (TMSL)

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On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the T. Rowe Price Small-Mid Cap ETF (TMSL) with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.

T. Rowe Price Small-Mid Cap ETF (TMSL)

Chuck Jaffe: One fund on point for today. The experts to talk about it. This is ETF of the Week. Welcome to the ETF of the Week, where we examine trending newsworthy, unique, and intriguing exchange traded funds with Todd Rosenbluth, head of research at VettaFi. The VettaFi.com site has a suite of tools that’s going to help make you a savvier, smarter, better, more well-researched investor in exchange traded funds.

Check it out for yourself at VettaFi.com. Todd Rosenbluth, it is great to chat with you again.

Todd Rosenbluth: Great to be with you again, Chuck.

Chuck Jaffe: Your ETF of the week is?

Todd Rosenbluth: The T. Rowe Price Small-Mid Cap ETF (TMSL).

Chuck Jaffe: T-M-S-L. T. Rowe Price Small-Mid Cap ETF. Now the truth is this fund is fairly new. It came out late last year and it’s a new fund in a space that really, you know, it’s not like you put it out at a great time to be doing small midcaps. Because it was the Magnificent Seven carrying everything. But now there’s a lot of talk about things broadening out. So is it that this fund is going to benefit from that? Is it that this fund is new in that space? Why this fund now?

Todd Rosenbluth: Yeah, T. Rowe Price has long, extensive expertise in actively picking small and mid-cap stocks. They’ve been doing it for years, primarily in the mutual fund space. T. Rowe Price entered the ETF market a few years ago. This ETF is relatively new, as you mentioned, but we think you get that expertise and the benefits of ETF. The tax efficiency, the liquidity, and the transparency with that stock-picking expertise that hero price brings to bear.

Chuck Jaffe: In terms of that stock-picking expertise, let’s let’s break that down just a little bit because folks who’ve been following the ETF of the Week for a long time know that Tom Lydon, vice chairman of VettaFi, did this with me for years. He was a trend follower by nature, and he tended to look more at the fund as a whole unit.

You tend to look more at what a fund is holding. So why would we believe that this fund, new as it is without an established track record, is going to come in and be better than all those mid-cap small cap ETFs that have an experienced track record?

Todd Rosenbluth: So a couple of things. One, we get to look inside the portfolio and see what those underlying holdings are, and investors can do that. Now, the holdings are updated on a daily basis. And so by the time people watch this or hear this, it may not have all of the exact same stocks. So I won’t list individual companies at this moment, but what you’re going for is active management.

So many of the ETFs that exist in the small or the small mid-cap space are index-based. This is active management. You’re getting to sort, or you’re getting to benefit from a team that sorts, the universe looking for high-quality companies that are undervalued. Strong earnings records. Index-based products are going to offer you the whole market and they’re going to offer it where it continues to hold stocks instead of taking profits over time.

But we also can look at how this fund has performed in that relatively short period of time that it’s come to market. Now, it hasn’t been that long in 2024, but it’s outperforming index-based small and mid-cap products from iShares. And that’s encouraging to me. That is showing that management can put money to work in an active approach and have success in picking through that universe.

Chuck Jaffe: It’s showing you that success at a time when the market is up and historically active management the thing about active management is it gives you more downside protection than upside. Like the market you ride the wave up, the tide lifts all boats, index funds do great. But when things come down, that’s the idea that, oh, that manager gives you downside protection.

So is there a little bit of, hey, if it’s doing this in a decent market, it will be that much better when the conditions are actually favoring active management that much more?

Todd Rosenbluth: We think so. Again, time will tell and we’ll get along enough of a track record in both up and flat and down markets. But we do think that the benefit of active management and the expertise that T. Rowe Price brings to bear is they can take profits. And they are focused on higher-quality companies. That’s something that is often a concern if you’re investing in the Russell 2000, for example. Tthere can be a lot of unprofitable companies here, prices screening many of those companies out with their own fundamental research approach.

And we feel like they’ve got that expertise that can help investors who are looking to add small and mid-cap exposure to diversify their overall portfolio in this.

Is it Time for Small and Mid-Caps?

Chuck Jaffe: Is there a bit of a market call on the idea that small and mid-cap? It’s their time that you know, the Mag seven can’t carry everything forever. And that’s what’s been left behind and so now’s the time.

Todd Rosenbluth: That’s one of the reasons too. Yeah. The Mega-Cap growth stocks led the market in 2023. They’ve had a good start in 2024. We’re hearing it at VettaFi from advisors who are looking for other alternatives to broaden out their portfolio. In fact, we have an Equity Symposium taking place on March 13th, and the portfolio management team behind this T. Rowe Price small mid-cap ETF is going to join us to make the case for why you should broaden your portfolio, why you should take valuation into account more, and why you should look inside.

Chuck Jaffe: Obviously, T. Rowe Price, one of the biggest names in fund investing. But again, this fund is fairly new, doesn’t have a 200-day moving average. So if you were a trend follower, you’d have to be doing it on a 50-day moving average, which by the way, it’s above. But also it still is relatively small. Help people understand when you are concerned about a new fund, because yeah, you wouldn’t be worried.

I know you wouldn’t be worried if it was iShares, if it was T. Rowe, if it was Fidelity, if it was Vanguard, etc.. But there are a lot of new funds out there that might be in the same space that you would say, yeah, that one, I want it to prove itself more. So what is your baseline for you know, this is what I’d like to see with a new fund in terms of time, experience, and assets under management. Or whatever before you’re going to get involved?

Todd Rosenbluth: So you’re right, this fund has just under 100 million in assets under management. I view that actually as a strength because what often happens with active small-cap strategy is that there becomes liquidity and capacity constraints. In fact, some of the tier price, small and mid-cap oriented mutual funds have historically closed, as have others in the mutual fund space, because management can’t deal with the money coming in and needing to put that to work and continue to find the best ideas.

So a relatively small but proven management team or a relatively small fund with a proven management team, and you can look inside the portfolio that’s a good thing in this space. Most of the active funds that exist in the equity space are large-cap-focused. You don’t have small and mid-cap companies inside. So you don’t get that same reward potential that you’d have with these up-and-coming companies.

And I also like that it’s small and mid-cap, so management can identify small-cap companies and if the valuation still looks attractive and the growth is strong. They can continue to hold on to some of these names in a low turnover approach instead of having to take things off the table because it’s too big a portfolio position on a market cap basis.

Chuck Jaffe: It’s T-M-S-L, Tom-Mary-Sam-Lou. The T. Rowe Price Small Mid-Cap ETF, the ETF of the Week from Todd Rosenbluth at VettaFi. Todd great stuff. Thanks so much for joining me.

Todd Rosenbluth: I’ll see you next week, Chuck.

Chuck Jaffe: The ETF of the Week is a joint production between VettaFi and Money Life with Chuck Jaffe and yup that’s me. And you can learn all about my hourlong weekday podcast by going to your favorite podcast app or by checking it out for yourself, at MoneyLifeShow.com. And speaking about checking things out for yourself, make sure you go to VettaFi.com if you’re looking for information on exchange-traded funds there’s a full suite of research and tools that will help you out there on Twitter @Vetta_Fi. Todd Rosenbluth their head of research, my guest well he’s on Twitter to he is at @ToddRosenbluth. The ETF of the week is here for you every Thursday. Make sure you don’t miss anything by subscribing on your favorite podcast.

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