T. Rowe Price Leaders Talk TTEQ OpenAI Pickup

Active ETFs have proliferated in recent years, bringing dynamic new strategies to the broader ETF ecosystem. Despite that, most sector ETFs, in particular, take a passive investing approach to their segments, by closely tracking an index. Active ETFs may be starting to change that, however, with funds like TTEQ. The tech fund implements active management to offer a different kind of sector approach.

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TTEQ, the T. Rowe Price Technology ETF, launched just a little over a year ago. Managed by T. Rowe Price vice president and portfolio manager Dominic Rizzo, the fund recently made a private market investment in OpenAI. OpenAI operates the popular ChatGPT chatbot among other AI tools. VettaFi recently spoke with Rizzo and T. Rowe Price head of ETF Specialists Chris Murphy about the move and TTEQ’s outlook.

The pair spoke not only about the active ETF adding an allocation to OpenAI, but also how its active approach can offer a different and potentially more effective way to construct a sector allocation.

Tech ETF Investing in 2025

Rizzo also discussed the recent move to add OpenAI to TTEQ’s portfolio as an example of how active management offers ways to effectively capture performance within a sector. Rizzo has managed the firm’s Global Technology Equity Strategy across multiple portfolios since December 2022. He has historically included private investments in those portfolios.

“(The) global technology strategy … has a strong and long history of investing in private companies,” he said. “And so when we went forward with TTEQ, we wanted to make sure that it had this capability, because I think that’s an area (where) we can provide investors with differentiated insight, differentiated expertise.”

Rizzo also pointed to T. Rowe Price’s proficiency in bridging the gap between private investments and public companies. That’s a capability that active tech ETFs like TTEQ can offer that passives broadly can’t, Murphy said. What’s more, TTEQ’s active remit empowers it to cross over certain GICS sectors to provide a more holistic tech allocation. It’s that difference that could help active sector funds like TTEQ take market share from passive sector funds.

“This is a gap that we think highlights a tremendous opportunity for active management and sector investing, specifically in technology where these benchmarks are static, they’re domestic focused. You can’t cut across sector lines or geographies, or obviously private,” Murphy said.

“So, that flexibility allows active managers to capture the real economic themes within that sector that investors would expect, rather than having to be constrained by whatever the index definition is of a technology company or the historical classification,” he added.

“So being able to cut across sectors, cut across geographies, and then have the unique ability like we have to access deal flow through privates is an extreme advantage moving forward for not just technology sector investing, but any sector investing, period.”

OpenAI and TTEQ

Picking up OpenAI falls squarely within TTEQ’s approach, Rizzo explained.

Referring to “Aggregation Theory,” Rizzo suggested OpenAI has a chance to be an “aggregator of aggregators.” He explained the concept that, per the theory, if one controls demand in a zero marginal cost digital good environment, supply commodifies.

He further pointed to companies like Google (GOOGL) and Meta (META) as examples of aggregators. OpenAI’s capture of the zeitgeist, its hundreds of millions of users, and its reams of knowledge about each user position it to aggregate those other aggregators.

Uber (UBER) offers an example to consider, he added. An Uber user booking through the app gets “commodified supply” – the ride provider. In the future, he said, that same user might tell ChatGPT to plan logistics for a trip which could include Uber but also other steps or companies.

“So, first off, then OpenAI owns that customer, they control the demand, and they could start commodifying supply,” he explained. “If Uber is the best way to get you the logistics, great. It will be an Uber, but maybe it’s Lyft, maybe it’s a private service.”

Further, he said, the company also offers its ChatGPT Enterprise service for companies and its API business. Per Rizzo, users can lean on ChatGPT’s API tools to develop their own tools on top of the existing ChatGPT models. Those two different services add to the overall number of revenue streams the company can rely on to meet those goals.

“I think they have a lot of different revenue streams potentially, and that’s why when Sam (Altman) talks about a $100 billion (run rate) number in 27 or 28, it actually sounds reasonable to me, and it’s the fastest business ever to $100 billion of revenue,” he said.

“Now they have a ton of costs they’ve got to go figure out how to fund. But I think that if you are the fastest business to $100 billion of revenue ever, you’ll be able to get the necessary equity or debt financing to make those costs happen.”

TTEQ: Not an AI ETF, but a Tech ETF

Rizzo did emphasize, however, that TTEQ is not an AI ETF, but a technology ETF. While the fund may invest in firms benefiting from the AI revolution now, it may not always have such a lean.

“On the AI trade, right now TTEQ is in what I’d call “AI-on” mode,” he said. “Productivity-enhancing technologies can come with speculative bubbles – they often do. It is our job to navigate those responsibly for our clients.”

“At some point. I don’t know when– it could be three years from now, it could be six months from now, it could be six years from now, we will be in “AI-off” mode, which means more defensive,” he added. “This is really important. TTEQ is not an AI strategy. It is a strategy whose framework is currently AI on, and at some point can be AI off.”

Together, the active tech ETF return 26.9% YTD and 27.3% over the last one-year period, per ETF Database data. Looking to Rizzo’s stated comparison with the Invesco QQQ Trust (QQQ), the fund has outperformed the Qs on a YTD and one-year basis. Looking ahead, the fund could appeal for those wanting a different, active approach to their tech sector allocation.

“I think this is a distinct advantage we have versus passive, because if you’re the advisor, if you’re the individual, and you go buy an AI-focused ETF, the decision of when to sell AI is on you,” he concluded. “If you decide that our strategy is the best way for you to get exposure to the broader technology universe, that decision relies on me and our investment research framework.”

TTEQ charges a 63 basis point (bps) fee to actively invest globally in mostly large cap growth tech firms that Rizzo and team identify via fundamental research.