It’s often said that it’s a stock pickers market. Arguably, that’s an overused sentiment, but the current confirms stock selection remains vital.
There are also indications that active management in the exchange traded funds wrapper is on the rise. Put those two scenarios together and good things could be in store for ETFs such as the Calvert US Select Equity ETF (CVSE). As things stand today, the shifting regulatory environment faced by issuers of environmental, social, and governance (ESG) funds and advisors demanding more uniformity on ESG scoring and standards highlights the appeal of CVSE.
As an actively managed fund, CVSE can potentially navigate the evolving ESG regulatory landscape better than index-based products. CVSE’s status as an active fund is also relevant at a time when stock selection is back in the spotlight.
Why CVSE Matters Now
A couple of actors could point to active management, and thus CVSE, being back in style over the near term. The first point centers around earnings growth. The current quarter is expected to be the first this year in which the S&P 500 delivers positive earnings per share (EPS) growth and it could be as high as 5%. Second, sector dispersion could highlight the advantages of active management.
“Dispersion is evident across sectors, with cyclicals broadly doing better than non-cyclicals despite fears of an economic recession. We also see growing dispersion at the individual stock level and highlight two areas where this may be creating opportunity for stock pickers,” according to BlackRock.
With equity-based funds, active management implies a level of sector flexibility. That may have benefited CVSE in the third quarter. Financial services and industrials – sectors that combine for 28% of the Calvert ETF’s roster – were among the best EPS growers on a percentage basis.
Another point in favor of CVSE is that it devotes just 11% of its weight to the two consumer sectors. That’s important at a time when signs are mounting that consumers are ready to dial back spending and some are being burdened by outstanding obligations.
“Fatigue is most pronounced among low-end consumers, and we are seeing this reflected in underwhelming performance from dollar stores. Results from financial institutions also exposed some cracks, showing an uptick in credit card delinquencies among lower-end consumers. While overall delinquencies are still below normal, we believe the direction of travel bears watching,” concluded BlackRock.
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