The winter holiday season is here, and I wanted to join in the festivities. Recently, advisors have become more comfortable turning to active ETFs to help them and their clients navigate the uncertain market environment. Actively managed ETFs have gained traction in 2023.
For example, the JPMorgan Equity Premium Income ETF (JEPI) gathered $13 billion and now has $30 billion in assets. Meanwhile, the Dimensional US Core Equity 2 ETF (DFAC) added $4 billion to push assets to $23 billion. These firms also have some new, under-the-radar family members like the JPMorgan U.S. Tech Leaders ETF (JTEK) and the Dimensional California Municipal Bond ETF (DFCA). However, there are many other actively managed that warrant more attention.
To celebrate, here are eight active ETFs that I think are under radar. One for each night of Chanukah that I will be celebrating at the end of this week. Freely consider putting a present under your Christmas tree for each as well.
Equity ETFs Worthy of a Spin
The Fidelity Enhanced Large Cap ETF (FELC) has $1.9 billion in assets. This might seem too large for an under-the-radar ETF. However, FELC just became an ETF in mid-November, converting from a mutual fund. Most people are probably unaware the ETF already has an established track record. In the three-year period ended October, the fund rose 11.6% on an annualized basis, beating the S&P 500 by 140 basis points. The U.S. equity fund takes a systematic active approach incorporating risk management into its process.
In contrast, the T. Rowe Price International Equity ETF (TOUS) has just $70 million in assets. While the firm launched some U.S. equity ETFs in the past, this international fund came to market in June 2023. TOUS is overweighted relative to the MSCI EAFE toward European stocks, with sector tilts for healthcare and information technology. The fund focuses on high-quality businesses like ASML and Novo Nordisk.
The BNY Mellon Concentrated International Equity ETF (BKCI) has $80 million in assets and is turning one year old this week. The fund owns just 30 stocks, less than one-fifth found in TOUS. The ETF is subadvised by Walter Scott & Partners. Air Liquide, Compass Group, and SAP were among the recent top positions. VettaFi will be talking with the management of BKCI during the Market Outlook Symposium on December 14. Registration is open.
Shining a Light on an Active Thematic ETF
When many investors think of actively managed thematic ETFs, ARK Investments’ fund likely comes to mind. However, there are many others offering security selection expertise.
The Goldman Sachs Future Consumer ETF (GBUY) also has $80 million in assets and launched two years ago. Goldman believes that companies aligned with younger consumers’ differentiated spending preferences may represent compelling investment opportunities. Top holdings include mega-cap U.S. stocks like Alphabet, Amazon.com, and Mastercard. However, LVMH, MercadoLibre, and Taiwan Semiconductor are also well-represented. We talked about GBUY during the VettaFi Artificial Intelligences Symposium in August.
A Latke to Like About Active Bond ETFs
This equity-laden list of active ETFs needs some diversification. Indeed, many find the municipal bond and convertible bond market hard to navigate alone. Active management can help.
The Hartford Schroders Tax Aware Bond (HTAB) is older than most on this list. HTAB launched in April 2018 with a solid record. However, the fund’s 4.4% year-to-date gain has significantly outperformed its peers. Despite its success, HTEB has $185 million in assets. The fund primarily invests in high-investment-grade bonds and takes on some interest-rate risk.
The PIMCO Multisector Bond Active ETF (PYLD) launched in June 2023 and has $190 million in assets. Run by PIMCO’s Chief Investment Officer, Dan Ivascyn, and a team of sector-specific managers, PYLD is a best-ideas strategy. Seeking attractive yield, the fund invests in corporates, mortgages, and sovereign bonds including those with noninvestment-grade ratings.
The Calamos Convertible Equity Alternative ETF (CVRT) launched in October 2023 and has less than $10 million in assets. However, we think given the firm’s convertible bond heritage and its unique approach will help it to grow. CVRT focuses on convertible bonds with a high level of equity sensitivity. At next week’s VettaFi Market Outlook Symposium, we will also be joined by experts from Calamos Investments.
Carrying on the Tradition Through ETFs
The Franklin Income Focus ETF (INCM) rounds out our list’s blended exposure to fixed income, stocks, and convertible bonds. The now $100 million multi-asset ETF launched in June 2023 and is based on the 75-year-old Frankin Income mutual fund that manages more than $65 billion in assets. The fund’s fixed income exposure is mostly to BBB and below-investment-grade bonds.
While asset allocation ETFs often struggled to gather assets, we think Franklin’s experience running a similar strategy makes it unique.
We hope you have a great holiday and celebrate with friends and family. Freely discuss active ETFs and impress them with your insights. We appreciate your being part of our community in 2023.
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