With Value Perking up, Consider This Fund with a New Structure

Value stocks are enjoying solid showings in September and that could be the start of something more substantial, perhaps putting the spotlight on value strategies such as the Clearbridge Focus Value ETF (CFCV).

CFCV is one of the active non-transparent ETFs (ANTs) that have recently come to market. One way of looking at ANTs is that this category is a new fund “technology.” ANTs represent the best of both world’s ideas: the advantages of active management with the liquidity and tradability of ETFs, something that long eluded the actively managed mutual fund industry.

CFCV “is an actively managed strategy that seeks to achieve long‐term capital appreciation through investment in a select number of large‐capitalization stocks that, through robust fundamental research, identifies companies with strong business franchises and attractive valuations,” according to the issuer.

Call on CFCV

Differences between ANTs relative to basic ETFs ETFs may also have advantages. By keeping certain information about the ETF secret, this ETF may face less risk that other traders can predict or copy its investment strategy. This may improve the ETF’s performance. If other traders are able to copy or predict the ETF’s investment strategy, however, this may hurt the ETF’s performance.

“CFCV may benefit investors who seek to generate long-term growth of capital and competitive returns through a full market cycle combined with the potential tax advantages and compelling relative pricing of a confidential ETF vehicle,” according to Legg Mason.

Growth stocks may be seen as exorbitant and overvalued, causing some investors to favor value stocks, which are considered undervalued by the market. Value stocks tend to trade at a lower price relative to their fundamentals (including dividends, earnings, and sales). While they generally have solid fundamentals, value stocks may have lost popularity in the market and are considered bargain priced compared with their competitors.

CFCV, which debuted in May, also offers a potentially more exciting approach to value as it allocates over a quarter of its weight to technology and communication services stocks.

Value fans believe this time may be different for value stocks, pointing to improving measures of investment sentiment, abating fears of a recession, rebounding corporate profits, and lessening trade tensions between the U.S. and China. Furthermore, value stocks are now trading at some of their most attractive prices in years as the growth/value gap is as wide as it’s been in decades.

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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.