Why a Bottom-Up Active Approach Matters in International Equities

Amid 2025 market volatility and tariff concerns driving demand for international diversification, the article advocates for active, bottom-up international equity ETFs as a strategic investment. This approach offers superior adaptability to geopolitical shifts and enables deep fundamental security selection, contrasting with the inflexibility of passive index funds. The T. Rowe Price Global Equity ETF (TGLB) is presented as an example, leveraging a bottom-up strategy with a 46 basis point fee and demonstrating a 2.4% return over the last three months, suggesting potential for outperformance in global markets.

Analysis

Market performance in 2025 has been significantly influenced by tariff-related uncertainty, prompting a notable investor rotation into international equities for diversification. The prevailing argument is that passive, index-tracking strategies for international exposure are less effective in this environment due to their inherent inflexibility in adapting to geopolitical and policy shifts. In contrast, an active management approach offers the adaptability to navigate such risks. Specifically, a bottom-up active strategy, which focuses on scrutinizing the fundamentals of individual firms rather than adhering to market-cap-weighted indices, is highlighted as a superior method for security selection in a complex global landscape. The T. Rowe Price Global Equity ETF (TGLB) is presented as a case study for this approach; the recently launched fund actively invests in global and emerging markets with a 46 basis point fee, employing a bottom-up fundamental research process. This strategy has contributed to its 2.4% return over the past three months, positioning it as a potentially outperforming alternative to passive funds.

Key Decisions for Investors

• Given the market's sensitivity to tariffs and geopolitical events, investors should review their international equity exposure and assess the merits of active management for risk mitigation.
• Consider allocating to active international ETFs, such as TGLB, which are structured to offer greater flexibility in security selection and portfolio adjustments compared to passive, index-bound funds.
• For funds employing a bottom-up active strategy, monitor whether the stated high-conviction approach can justify its management fee, in TGLB's case 46 basis points, by delivering sustained outperformance over passive benchmarks.