Capital Group launched its first set of active ETFs in early 2022 with much success and has continued to grow. The impressive first 12 months as an ETF provider included crossing the $7 billion in assets under management mark. As of late September 2023, the asset base swelled to over $12 billion. With today’s lineup expansion of five funds, we see continued growth. With the suite, advisors have more ways to build portfolios using active ETFs. Not all clients have the same risk tolerance.
Capital Group is tapping into the growing interest in actively managed ETFs. During the VettaFi Equity symposium last week, we asked, “Which investment style would you consider investing in, in actively managed ETFs?” A strong 52% of respondents chose U.S. large-caps, while a healthy 46% and 32%, respectively, selected international equities and fixed income.
A Growing Suite of Active Equity ETFs
The initial tranche of active equity ETFs consisted of 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). Each has more than $1 billion in AUM.
The Capital Group Dividend Growers ETF (CGDG) will select companies globally after evaluating the current dividend yield, the dividend history, and a forecast of dividend growth. According to Capital Group, the fund is expected to invest a significant portion of assets outside of the U.S. CGDV has 91% of assets invested in the U.S. through holdings like Broadcom, Carrier Global, and General Electric.
Jacob Gerber, equity and multi-asset investment director at Capital Group, spoke at the VettaFi Equity symposium about CGDV’s approach: “We try and find these companies that are undervalued relative to future prospects. We seek to provide an income stream at a premium to that of the S&P 500.”
According to Capital Group, the second new 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 higher-risk but higher-reward emerging markets. CGXU’s holdings include MercadoLibre and Reliance Industries, as well as Airbus and Novo Nordisk.
Active Fixed Income ETFs for More Risk-Conscious Investors
Two of the new active ETFs are fixed income focused. Anmol Sinha, fixed income director at Capital Group, spoke about active management adding the ability to navigate inefficiencies inherent to the fixed income landscape at VettaFi’s Fixed Income Symposium in July.
The Capital Group Core Bond ETF aims to provide a high level of current income consistent with capital preservation. CGCB appears to be a more risk-conscious investment-grade alternative to the Capital Group Core Plus Income ETF (CGCP), which also manages $1 billion. CGCP recently had 33% in bonds rated AAA and 13% in Treasuries/Agencies. It also had 16% in noninvestment-grade bonds and 5% in unrated securities.
Meanwhile, the Capital Group Short Duration Municipal Income ETF (CGSM) will seek tax-free income but with limited interest-rate sensitivity. The Capital Group Municipal Income ETF (CGMU) began trading in October 2022 and manages $235 million in assets. As of June 2023, CGMU had an effective duration of 4.8 years. We expect CGSM to have a duration half the size of CGMU.
Balancing Stocks and Bonds in One ETF
Lastly, the fifth ETF, the Capital Group Core Balanced ETF (CGBL), plans to invest between 50%-75% of assets in equities (some of that in international equities) with at least 25% in fixed income and the remainder in cash. CGBL plans to invest in the firm’s fixed income ETFs like CGCP. The ETF might appeal to advisors looking for assistance in making asset allocation not just security selection decisions.
“Capital’s new ETFs are designed to fit easily within advisor constructed portfolios,” explained Scott Davis, head of ETFs at Capital Group. “CGBL, our Core Balanced ETF, was built because advisors consistently asked for a strategy like it that could be used as a holistic core solution.”
“CGCB, Capital Group Core Bond, is a true core strategy for which the pattern of results matters, and we aim to deliver consistent excess returns while maintaining a risk profile that looks and feels like the aggregate. CGIE, Capital Group International Equity, as another example, delivers primarily developed markets international exposure with limited emerging markets,” added Davis.
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