For many investors, it is easy to think of active management as available only through a mutual fund wrapper with a grizzled team of analysts and portfolio managers.
Meanwhile, ETFs are usually thought of just tracking a well-known benchmark such as the S&P 500 index or the Bloomberg Barclays Aggregate index. Yet, just as there long have been index-based mutual funds from Vanguard, Fidelity and others, increasingly well-known active managers have launched their best ideas in an ETF wrapper and seeking to outperform an index.
Davis Advisors, which has long offered a suite of strong-performing, bottom-up driven U.S. and global equity mutual funds, launched three equity ETFs in January 2017. At the Inside ETF Conference in late January, CFRA spoke with Chris Davis, chairman and portfolio manager of Davis Advisors, about why the firm entered the ETF market. Davis explained that the ETF wrapper enabled the asset management company to combine the low-cost, transparent benefits of an ETF with the attributes of true active management, such as flexibility, accountability and the opportunity to outperform. To watch the CFRA interview with Davis on video, check out https://newpublic.cfraresearch.com/davis_actively_managed_etfs/.
Davis himself is a co-manager of Selected American Shares (SLADX), a CFRA four-star rated mutual fund whose 22.2% total return was in the minority of large-cap core mutual funds to outperform the S&P 500 index in 2017. SLADX’s rating and record is aided by its below-average 0.65% expense ratio. The fund recently held 51 positions with the top-10 holdings comprising 49% of assets. Davis Select USA Equity ETF (DUSA) is a more concentrated version of SLADX with just 21 holdings and the top-10 comprising 68% of assets.
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Brandon Clark, a Legg Mason product manager focused on ETF management, explained to CFRA that Legg Mason has traditionally offered mutual funds and separately managed accounts, but a natural extension for investor choice was to offer ETF versions. To see the video with Clark, watch https://newpublic.cfraresearch.com/legg_mason_actively_managed_etfs/.
Legg Mason now has 11 ETFs in CFRA’s database, including three actively managed equity products that came to market in May 2017. Clearbridge All Cap Growth (CACG) is one of them and holds a collection of stocks CFRA is favorable on from a valuation and risk perspective.
For years, the few actively managed ETFs were focused on fixed income strategies. PIMCO Enhanced Short Maturity Active Exchange Traded Fund (MINT) now has $8.4 billion in assets and is seven years old. CFRA’s positive rating reflects the favorably low duration attribute of the investment-grade portfolio as well as its tight bid/ask spread. The ETF has a 0.35% expense ratio.
Meanwhile, one of the newer actively managed bond ETFs is JPMorgan Global Bond Opportunities (JPGB), which launched in April 2017. As Jillian DelSignore, head of ETF Distribution for JPMorgan Asset Management explained to CFRA in this video — https://newpublic.cfraresearch.com/jpmorgan_fixed_income_etfs/ — JPGB is an unconstrained and more opportunistic debt strategy. The fund has exposure to both investment-grade and speculative-grade bonds in both developed and emerging markets.
Todd Rosenbluth is Director of ETF & Mutual Fund Research at CFRA.