Evaluating a Core Equity Strategy in a New Fund Wrapper | ETF Trends

Active non-transparent exchange traded funds (ANTs) are the new kids on the fund industry block, but many address familiar investing concepts. Consider the newly minted Natixis Vaughan Nelson Select ETF (VNSE), which debuted with two other Natixis ANTs last month.

The Natixis Vaughan Nelson Select ETF invests in companies within the market capitalization range of the Russell 3000® Index at time of purchase and seeks long-term capital appreciation. The strategy employs sophisticated, proprietary analysis, valuation and risk management. Managers Chris Wallis and Scott Weber follow a research-intensive process emphasizing balance sheets and cash flow-based projections.

Leveraging the New York Stock Exchange (NYSE)’s Proxy Portfolio Methodology approach, Natixis’s semi-transparent active ETFs disclose proxy portfolios on a daily basis that closely track the actual portfolios’ intraday performance. This structure allows the portfolio managers to shield the identity of stocks on which they are actively trading, while still providing market makers enough information to offer competitive bids and asks on the ETFs. Natixis’s active semi-transparent ETFs give investors access to highly skilled active managers through a tax-efficient and lower cost vehicle.

VNSE’s Unique Approach

VNSE is relevant at a time when many advisors and investors are rooting for value stocks to make a comeback, but traditional approaches to the value factor continue lagging.

“Vaughan Nelson seeks to take advantage of temporary information and marketplace inefficiencies across the market capitalization range to find opportunities to invest in companies at valuations materially below their long-term intrinsic value,” according to Natixis.

VNSE doesn’t simply embrace cheap stocks. Its managers look for names that are undervalued relative to stout earnings growth and those that are undervalued relative to strong asset bases. The ability of a company to sustain and grow dividends is another metric applied in the VNSE evaluation process.

With traditional dividend-paying stock strategies, investors may be exposed to unintended risks. For instance, high dividend-yielding companies may be exposed to some perceived risk with an equity investment in that company. For consistent dividend payers or dividend growers, investors are relying on historical patterns to repeat themselves in the future, and as we all know, past performance is no guarantee of future results.

Investors should consider quality dividend growth stocks that typically exhibit stable earnings, solid fundamentals, strong histories of profit and growth, commitment to shareholders, and management team convection in their businesses.

For more on active strategies, visit our Active ETFs Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.