ETF Trends CEO Tom Lydon discussed the Putnam Focused Large Cap Growth ETF (PGRO) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.
PGRO is an actively managed, non-transparent fund that invests in US large-cap growth companies. It focuses on businesses that exhibit both a high level of growth and an above-average duration of growth. Additionally, taking a thematic approach, the fund combines top-down investment themes with bottom-up research to select securities that can benefit from growth trends. Plus, with ownership culture backed by fundamental research, the managers seek out companies with management teams that act like owners.
ETF investors are now able to access time-tested active strategies from Putnam Investments. Traditional mutual funds turned to active ETFs. PGRO is part of a suite of new offerings representing the first ETF products from the company, which currently provides an array of retail mutual funds, separately managed accounts, collective investment trusts, private funds, and non-U.S. funds.
Putnam’s suite of ETFs will utilize the Fidelity tracking basket methodology for active equity ETFs. Fidelity’s tracking basket methodology and related features are designed to provide market makers with enough information to make effective markets in shares of the ETFs. This helps keep their secret sauce a secret. Maintaining the confidentiality of portfolio holdings is necessary for Putnam to execute these strategies to benefit investors.
The new active ETFs have underlying investment portfolios similar to the existing Putnam mutual funds and separately managed account strategies and utilize the same portfolio managers and research teams as those related products. To employ the firm’s established active investment approach, PGRO is characterized by rigorous fundamental research and advanced risk management techniques in the ultimate pursuit of alpha generation for investors.
After the inflation scare, investors are shifting back into the growth style. There’s a refocusing on the economic reopenings, improving economic data, and normalizing economic conditions. Even if the new Covid-19 Delta variant is a cause for concern, an environment of restrictions or shutdowns has also favored the growth style.
Strong earnings has also helped propel the growth investment theme. Analysts currently see an aggregate year-on-year S&P earnings growth of 76.5% for the April to June period. This is a substantial increase from the 54% projected at the beginning of the quarter.
If the market is in the period of a maturing bull market, investors would do better with stable growth names. Still, when considering value weakness, the cyclical/value trade is also entering the 2Q21 reporting season a bit weak, which is being reflected by earnings revisions. Losing some luster as a drop in Treasury yields combined with the fast spread of a coronavirus variant has prompted investors to rethink the reflation trade.
Putnam Focused Large Cap Growth ETF
So as far as why to change from the mutual fund to ETFs, it’s cost-competitive. ETFs may reduce costs to investors with a simplified fee structure compared to alternatives.
There’s also tax efficiency. The structure of ETFs can reduce the impact of capital gains distributions relative to other investment vehicles.
Plus, intraday liquidity is important. ETFs trade at any time of day, offering convenience and price clarity when buying and selling.
So, why take an active approach to growth investments? Potential for outperformance, as active strategies aim to outperform passive indexes through investment research and portfolio positioning. Finally, active risk management allows for a proactive analysis to help to identify better risk-reward potential than an index offers and reduce unintended risks.
Listen to the full podcast episode on the PGRO:
For more podcast episodes featuring Tom Lydon, visit our podcasts category.