Investors seeking income are moving into active stock funds. The category gathered $36 billion in July, according to State Street Investment Management. That brought year-to-date inflows to $272.5 billion, keeping active equity funds on pace for a record year.

Key Takeaways:

• Active equity funds gathered $36.0 billion in July as investors sought income beyond traditional index fund dividends.
• The S&P 500’s dividend yield sits near its lowest level since 2000, squeezing income from stock holdings.
• T. Rowe Price offers TCAL and TCAF, giving investors active options for income and core stock exposure.

The S&P 500 Index’s dividend yield sits near 1.08%, its lowest level since July 2000. That means plain index funds are delivering less income than they used to, the report showed. The gap is pushing more money into active strategies that use stock picking and options to generate cash payouts.

Traditional active equity funds pulled in $28.7 billion in July, according to the report. Meanwhile, the technology category led the way with $6.8 billion. Large-blend and large-value strategies added $4.2 billion and $3.2 billion, respectively.

Large-cap funds drew the heaviest inflows in July. That happened even though fewer than half of active large-blend and large-value managers beat their benchmarks over the past year. Matthew Bartolini, global head of research, wrote about the trend in the report. Tariff uncertainty, unclear Fed policy signals, and wide earnings swings are pushing investors toward stock pickers instead of index funds.

Elsewhere, non-traditional active equity strategies pulled in $7.4 billion in July, the report showed. Derivative income funds, which use options premiums to generate payouts, accounted for most of that total. They gathered $6.9 billion in July and $39.9 billion for the year.

Where Active Income Strategies Fit

One option for income-focused investors is the T. Rowe Price Capital Appreciation Premium Income ETF (TCAL). The fund invests in U.S. stocks and sells call options against individual holdings. That covered call approach is designed to generate extra income, according to T. Rowe Price.

David Giroux and a team of co-portfolio managers run the fund, T. Rowe Price says. Specifically, they target lower-volatility, high-quality companies. The team also writes call options further out of the money than many peer funds, aiming for larger premiums.

Giroux also leads a second T. Rowe Price fund. It targets investors who want core stock exposure without the options overlay. The T. Rowe Price Capital Appreciation Equity ETF (TCAF) invests in around 100 companies. Selections are based on fundamentals, market performance and macroeconomic factors, according to T. Rowe Price.

See more: Top Active ETF TCAF on Track for Major Milestone This Summer

Defined outcome funds, which use options to cap both gains and losses, are growing alongside the income trend. So far, assets in the category have reached $90 billion. That pace of inflows puts the group on track to cross $100 billion by year-end, the report showed.

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