With a more than 40-year heritage of value investing, Brandes made its debut in the ETF market today. The firm launched three actively managed equity ETFs, leveraging a partnership with Goldman Sachs ETF Accelerator.
The Brandes U.S. Value ETF (BUSA), the Brandes U.S Small-Mid-Cap Value ETF (BSMC), and the Brandes International Equity ETF (BINC) are now trading. They join a growing ETF universe. As of September 2023, there were approximately 800 actively managed equity ETFs. While these funds manage just 5% of the equity ETF asset base, they have garnered a 32% share of the flows in the first nine months of 2023.
What’s Inside the Brandes Actively Managed Equity ETFs
BSMC is focused on companies with market capitalizations above $5 billion that trade below management’s estimates of intrinsic value. At launch, the largest holdings included Chevron, Comcast, Halliburton, and McKesson. Interestingly, Alphabet, viewed by many as a growth company, is also in the top 10.
BSMV is focused on more moderately sized U.S. companies that are considered undervalued relative to their financial strength and upside potential. Amdocs, Edgewell Personal Care, Equity Commonwealth, and Quest Diagnostics were top holdings on the initial trading day.
BINC has the flexibility to invest in businesses based in various countries outside of the U.S., including emerging markets. Alibaba, SAP, Sanofi, and Takeda Pharmaceutical are some of its largest holdings.
BUSA has a 0.60% expense ratio, while BSMV and BINV have fees of 0.70%. These are higher than the cost of some of the more popular and recent actively managed ETFs from Avantis, Capital Group, Dimensional Funds, and JPMorgan. But fees are not all that matters.
Leveraging the Goldman Sachs Network
The trio of Brandes ETFs are the first to come to market leveraging the Goldman Sachs Accelerator business. This is a separate part of Goldman Sachs than the firm’s asset management business. The Accelerator segment taps into Goldman Sach’s broader expertise and connections within the ETF industry. Goldman is a larger liquidity provider, authorized participant, and has a broad array of institutional relationships with asset managers. The ETF ecosystem can be hard to navigate, so having friends to lean on can help a new entrant get to the market faster and smarter.
Brandes Has a Strong Mutual Fund Franchise
Brandes has a strong suite of actively managed mutual funds, including Morningstar five-star-rated Brandes Small Cap Value (BSCMX) and the four-star-rated Brandes International Equity (BIIEX). We think these mutual funds are geared more toward institutional investors, but the new and separately managed ETFs are available for all investors.
We expect additional managers to keep entering the ETF market, some leveraging a partnership with Goldman Sachs Accelerator. Given the persistent demand for equity ETFs relative to peer mutual funds, it remains hard to be looking in on the outside. But once asset managers arrive, it is paramount that they educate ETF investors about their unique capabilities.
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