T. Rowe Price Blends Quant Models, Research in TCAL ETF

Farris Shuggi, head of quantitative equity at T. Rowe Price, described the firm’s practice of combining fundamental research with quantitative models and pointed to the T. Rowe Price Capital Appreciation Premium Income ETF (TCAL) as an example. TCAL is a covered-call ETF that charges 34 basis points.

Shuggi described the process as starting with multifactor stock-selection models that provide a quantitative foundation, then bringing in fundamental analysts and portfolio managers to refine stock choices and control risk. He argued that pairing the ‘‘outside view’’ from models with the ‘‘inside view’’ from analysts tends to produce better outcomes than relying on either approach alone.

He outlined how TCAL applies the hybrid method. The ETF invests in U.S. stocks and generates income through a covered-call strategy. The team narrows the investable universe using a proprietary risk measure, focusing on the lower-risk quartile before consulting fundamental colleagues. “Based on names where we have a more positive view, we may write calls on those names further out of the money and other names we’ll write closer in the money,” Shuggi explained.

On market trends, Shuggi identified artificial intelligence as the dominant theme for investors to watch over the next five to 15 years, while noting risks around capital spending and high valuations. He posed the portfolio challenge directly: “How do we maintain exposure here but still have a balanced portfolio such that if we had a market pullback, we would outperform in a meaningful way?”

T. Rowe Price applies the mix of systematic models and analyst input across its quantitative strategies and active ETF lineup. TCAL is one of the firm’s products that combines equity exposure with option-writing to provide income alongside risk management.