After an impressive first year as an ETF provider, during which it crossed the $7 billion in assets-under-management mark, Capital Group yesterday filed for three new actively managed ETFs. Two of the ETFs will provide different global equity exposure than the firm’s pre-existing ETF lineup, while a third fund will hold equity and fixed income investments in one portfolio.
Capital Group has more than $1 billion in four different ETFs — the Capital Group Dividend Value ETF (CGDV), the Capital Group Growth ETF (CGGR), the Capital Group Global Growth Equity ETF (CGGO), and the Capital Group International Focus (CGXU).
VettaFi believes the two pending equity ETFs are variations of these popular products. The Capital Group World Dividend Growers ETF (CGDG) aims to provide long-term growth of capital and income by investing in companies globally that provide a combination of current yield and dividend growth. Unlike CGDV, which owns Broadcom, General Electric, and Raytheon Technologies as top positions, this new ETF will also have a mix of international stocks.
“Many high-quality dividend paying companies are based outside of the U.S.”, explained Scott Davis, Director of ETFs at Capital Group, in an exclusive interview. “Our product development is driven by what advisors need to build portfolios.”
According to Capital Group, the second equity ETF, the Capital Group International Equity ETF (CGIE), will primarily focus on developed international markets. This will distinguish CGIE from CGXU, which has approximately 25% of its assets invested in emerging markets. CGXU’s holdings include MercadoLibre and Reliance Industries, as well as Airbus and Novo Nordisk. However, Davis told VettaFi that the new ETF would not be carved out with just the developed stocks inside.
The third ETF, the Capital Group Core Balanced ETF (CGBL), is the biggest surprise of the three, as investors have largely ignored asset allocation or balanced ETFs. Indeed, ETFs like the iShares Core Moderate Allocation ETF (AOM) and SPDR SSGA Global Allocation ETF (GAL) collectively managed $16 billion in assets, equal to 0.2% of the $6.8 trillion of U.S. listed ETF assets at the end of March 2023.
“We’ve seen advisors using balance funds as the core of their asset allocation strategy and build around with more targeted exposure,” noted Davis. “They want asset allocation, stock selection and rebalancing all at once.”
Capital Group runs the $192 billion American Balanced Fund, but Davis was quick to point out the CGBL will be managed independently and differently.
Unlike many of its peers, we think CGBL will invest directly in U.S. equities but use Capital Group’s fixed income ETFs to gain exposure to bonds to improve its efficiency and cost of ownership. The firm’s largest fixed income ETFs are the Capital Group Core Plus Income ETF (CGCP) and the Capital Group Short Duration Income ETF (CGSD).
While no fees were disclosed, which is usual this early in the regulatory process, CGXU and CGGO have net expense ratios of 0.54% and 0.47%, respectively. We expect the global ETFs to be priced similarly and the balanced fund to be cheaper, as Capital Group charges less for U.S. equity and fixed income ETFs.
As with any new ETF, education about what makes the three different from the more than 3,000 products already trading will be paramount.
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