Capital Group’s Framsted on Active Fixed Income ETFs

Capital Group is one of the largest asset managers in the world, with some very large ETFs. That said, it still has 14 ETFs per VettaFi’s ETF Database. That makes the firm one to watch in the ETF space especially given its “Capital System.” VettaFi sat down with Capital Group’s head of global product strategy and development Holly Framsted at the ETF Exchange conference in Miami to discuss the firm’s recent survey about active fixed income ETFs.

That recent survey found that a limited understanding of active fixed income ETFs and a limited supply of those ETFs have likely been the key drivers behind an AUM mismatch between active fixed income mutual funds and active fixed income ETFs.

That mismatch has led to just 4% of managed assets sitting in active fixed income ETFs. Just 12% of fixed income ETF assets are active compared to 78% of fixed income mutual fund assets, Framsted said. The firm interviewed some 400 financial advisors in putting together its survey.

“Financial advisors didn’t really appreciate that the vehicle benefits, liquidity transparency, tax efficiency, convey to both asset classes,” Framsted noted. “There’s no reason why you can’t have active fixed income in an ETF structure.”

“We plan on spending a lot of time this year focused on adding education around active fixed income ETFs to our portfolio of value-add services that we provide to financial advisors,” she added.

Active Fixed Income ETFs

Advisors speaking to the firm’s own distributors have shared that they want an all-ETF model, she said. That speaks to the growing appeal of the wrapper. Per Framsted, that also indicates that many advisors have already moved their practices to ETFs. Given the survey results, she said, investors may not have known they could get active fixed income in the wrapper.

In fact, she said a large majority of the firm’s clients are building all active portfolios. In terms of ETFs, the firm’s two most-traded ETFs are CGGR and CGDV. CGGR, the Capital Group Growth ETF and CGDV, the Capital Group Dividend Value ETF, are often paired together, Framsted said.

Those strategies lean on the so-called “Capital System.” The firm’s system not only leans on fundamental portfolio management but also a multi-portfolio manager system.

“There are a number of portfolio managers, often analysts who invest alongside the portfolio managers in a research portfolio as a component of the total strategy,” Framsted added. “So what that tends to deliver is an investment profile that looks a bit more diversified and yet still over time can deliver superior investment results for clients.”

Looking ahead, Framsted pointed to cash coming off the sidelines as one key trend to watch. Capital Group itself has filed for a few new ETFs to round out its equity lineup. Those new tickers for which the firm has filed include the Capital Group Conservative Equity ETF (CGCV), the Capital Group International Core ETF (CGIC), the Capital Group Global Equity ETF (CGGE) and, the Capital Group New Geography Equity ETF (CGNG). Those join several other ETFs in the queue as the firm continues to build out its suite.

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