How active ETFs can help European investors access active management

The exchange‑traded fund (ETF) market is evolving. For years, ETFs were synonymous with passive investing and benchmark index tracking. That model still dominates, as 89% of the USD 21.4 trillion invested in ETFs globally is held in passive strategies.¹ However, active ETFs have become one of the industry’s fastest‑growing segments.²

For professional investors in Europe, the question is not only whether to use an ETF, but how active UCITS ETFs can support portfolio construction and long‑term investment objectives by combining professional portfolio management with the trading flexibility and transparency of the ETF structure.

What is a UCITS ETF?

A UCITS ETF is an exchange‑traded fund structured under the Undertakings for Collective Investment in Transferable Securities framework. UCITS rules include standards for diversification, liquidity, transparency, and investor protection.

Like mutual funds, UCITS ETFs provide access to a diversified portfolio of securities managed to a defined investment objective. The main difference is how investors buy and sell shares. Mutual fund shares are typically purchased and redeemed once per day at the fund’s net asset value. ETF shares trade on an exchange throughout the trading day.

For European professional investors and intermediaries, this structure can provide another route to active investment strategies, with the added flexibility of exchange trading.

How active UCITS ETFs work

Unlike passive ETFs, which seek to track an index, active UCITS ETFs give portfolio managers discretion to make investment decisions based on research, analysis, and changing market conditions. Active UCITS ETFs and active mutual funds share important similarities. Both can provide diversified portfolios, professional oversight, and investment strategies managed to specific objectives. Their differences are mainly structural and implementation‑related, as shown in Figure 1.

Why investors use active UCITS ETFs

Active management is the foundation of an active UCITS ETF, while the ETF structure provides the access vehicle. Together, they can help investors use active strategies with greater efficiency and flexibility in portfolio implementation.

Active UCITS ETFs may be useful when investors want to:

• Introduce active exposure into an allocation previously implemented passively.
• Complement existing mutual fund holdings with a different implementation vehicle.
• Make tactical or strategic allocations where intraday trading is useful.
• Use active strategies as portfolio building blocks within a UCITS framework.

Why active management matters in an ETF

Active management gives portfolio managers the flexibility to evaluate securities, respond to changing market conditions, and manage portfolio risks. Rather than tracking a benchmark index, an active UCITS ETF seeks to add value through research‑led security selection and portfolio construction.

This distinction matters because active strategies can adjust exposures as investment opportunities, risks, and market conditions evolve. That flexibility gives professional managers the ability to make deliberate portfolio decisions rather than holding securities solely because they are included in an index. For European investors, the value of an active ETF comes from this combination: access to active decision‑making through a transparent, exchange‑traded, UCITS‑compliant vehicle.

Periods of heightened volatility and greater dispersion among individual stock returns can create a broader opportunity set for active managers to identify temporarily depressed valuations, manage downside risks, and pursue potential alpha through research‑driven security selection.

The T. Rowe Price approach

Founded in 1937, T. Rowe Price has a long history as an active investment manager. Our investment approach is grounded in rigorous fundamental research, disciplined security selection and portfolio construction, and prudent risk management. Across market environments, our investment teams seek to identify opportunities and manage risks through forward‑looking analysis and investment insight.

T. Rowe Price active UCITS ETFs bring these established active investment capabilities to the ETF structure. For investors seeking flexible access to research‑driven active management, these vehicles can complement existing mutual fund holdings or serve as portfolio building blocks, depending on investment objectives, risk tolerance and implementation needs.

Capital at risk.

Risks

Risks—the following risks are materially relevant to the fund (please see the prospectus for further details):

• Currency Risk—Currency exchange rate movements could reduce investment gains or increase investment losses.
• Equity—Equities can lose value rapidly for a variety of reasons and can remain at low prices indefinitely.
• Geographic Concentration—Geographic concentration risk may result in performance being more strongly affected by any social, political, economic, environmental or market conditions affecting those countries or regions in which the fund’s assets are concentrated.
• Model Risk—Quantitative models are based on past market conditions, which may not accurately capture future risks, potentially leading to incorrect investment signals.
• Sustainability Alignment Product—Funds with a sustainable investment objective, or those that seek to promote environmental and/or social characteristics, are subject to distinct risks and considerations compared to conventional investment products. These funds may perform differently from those without such objectives or characteristics.

General Fund Risks

• Conflicts of Interest—The investment manager’s obligations to a fund may potentially conflict with its obligations to other investment portfolios it manages.
• Counterparty—Counterparty risk may materialize if an entity with which the fund does business becomes unwilling or unable to meet its obligations to the fund.
• Custody—In the event that the depositary and/or custodian becomes insolvent or otherwise fails, there may be a risk of loss or delay in return of certain fund’s assets.
• Cybersecurity—The fund may be subject to operational and information security risks resulting from breaches in cybersecurity of the digital information systems of the fund or its third-party service providers.
• Inflation—Inflation may erode the value of the fund and its investments in real terms.
• Investment Fund—Investing in funds involves certain risks an investor would not face if investing in markets directly.
• Market Liquidity—In extreme market conditions it may be difficult to sell the fund’s securities and it may not be possible to redeem shares at short notice.
• Market—Market risk may subject the fund to experience losses caused by unexpected changes in a wide variety of factors.
• Operational—Operational risk may cause losses as a result of incidents caused by people, systems,
  and/or processes.
• Sustainability—An environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment and performance of the fund.