3 ETFs for a Small-Cap Revival

Key Concepts

• Active ETFs: Exchange-traded funds where managers actively select securities to outperform a benchmark, rather than passively tracking an index.
• Municipal Bonds: Debt securities issued by state and local governments, often tax-exempt.
• Covered Calls: An options strategy where an investor holds a long position in an asset and sells (writes) call options on that same asset to generate income.
• Implied Volatility: A metric that captures the market's view of the likelihood of movement in a security's price.
• Value Tilt: An investment strategy that focuses on stocks that appear to be trading for less than their intrinsic value.
• Relative Value: A strategy of identifying mispriced securities by comparing them to similar assets.

The Rise of Active ETFs

2025 marked a significant milestone for the active ETF industry, which reached nearly $1.5 trillion in assets under management (AUM) and recorded $450 billion in total net inflows. The market has expanded to over 2,000 tickers, necessitating a more rigorous selection process for investors. The following three ETFs are highlighted from the Morningstar Prospect Report for their potential and management pedigree.

1. Vanguard Core Tax-Exempt Bond ETF (VCRM)

• Management: Led by veteran managers Steven McAfee and Matthew Kiselak, supported by a team of over 20 research analysts and 12 traders from the Vanguard Municipal Group.
• Methodology: The fund avoids speculative "outside bets," instead utilizing a disciplined process to identify mispriced securities across various sectors, states, and credit quality tiers. Analysts provide fundamental research and relative value recommendations, while traders navigate the fragmented municipal bond market to optimize execution.
• Performance: Since its November 2024 inception through January 2026, VCRM outperformed the Bloomberg Municipal Index by one basis point annually. In 2025, its first full calendar year, it achieved a top-decile ranking within its category despite market volatility.

2. T. Rowe Price Capital Appreciation Premium Income ETF (TCAL)

• Management: Managed by David Giroux, a celebrated stock picker, alongside a team of six supporting managers who transitioned from long-term analyst roles.
• Strategy: The fund combines a high-quality stock sleeve—focused on companies with strong growth potential and reasonable valuations—with an active covered call strategy.
• Key Argument: The managers argue that an actively managed covered call sleeve allows for dynamic adjustments. Unlike static strategies, this approach allows managers to "tip the scale" between income generation and capital appreciation based on expected market performance, effectively managing the inherent trade-off between the two.

3. John Hancock Disciplined Value International Select ETF (JDVI)

• Management: Led by veteran stock pickers Josh Jones and Chris Hart, who utilize a strategy consistent with their long-standing mutual fund, John Hancock Disciplined Value International.
• Methodology:
  1. Quantitative Screen: Narrows the investment universe to companies with strong fundamentals and attractive valuations.
  2. Fundamental Analysis: A team of over 20 analysts dissects balance sheets to determine a "fair value estimate" for each candidate.
• Performance: After a difficult start in 2024, the fund saw strong performance in 2025, largely driven by a successful overweighting of European equities. The managers’ long-term track record on similar strategies provides evidence of their ability to navigate full market cycles.

Synthesis and Conclusion

The growth of the active ETF space offers investors sophisticated tools previously reserved for mutual funds. The common thread among these three selections is the reliance on deep institutional resources—specifically, large, experienced research teams and veteran portfolio managers.

• VCRM demonstrates that disciplined, fundamental research can provide a competitive edge in the complex municipal bond market.
• TCAL highlights the evolution of income strategies, moving from static options writing to dynamic, manager-led decision-making.
• JDVI underscores the value of combining quantitative screening with rigorous, bottom-up fundamental analysis in international markets.

Investors should view these funds not just as tickers, but as extensions of proven investment philosophies backed by significant human capital.