For this week’s episode of ETF 360, ETF Trends CEO Tom Lydon and CIO Dave Nadig spoke with Changebridge Capital’s Founder and CIO, Ross Klein, alongside Co-Founder and Portfolio Manager Vince Lorusso.
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Looking at the approach Changebridge has to ETF strategy, Klein explains how the firm likes to offer a differentiated approach. They’ve designed methods that offer high active share, diversification benefits, and accessibility.
Klein explains, “We think investors should have access to our holdings on a daily basis, and we, at Changebridge, publish our thoughts on the portfolio on a monthly basis. We’re able to accomplish all of this by utilizing a quantum mental investing approach.”
This approach takes the best of quantitative and fundamental investing, putting it into one strategy. With its unique tool design, the company can identify inefficient securities that other investors are overlooking.
As far as this quantitative strategy’s effect on portfolio decisions, Lorruso explains that it’s the best of both worlds. “Quantitatively, we’re able to access large amounts of data, remove behavioral biases, and sift through data points effectively in real-time. But, what’s really critical to Changebridge, and what differentiates us is that we’re not using the quantitative output on factors like fundamentals, momentum, and value to tell us what looks like buy or sell or short. More importantly, it shows us what might be interesting or misunderstood in the marketplace.”
Quantitative tools highlight the inefficiency and learning of areas not being adequately covered or in the S&P 500. As a result, this strategy allows for a solid direction of fundamental research. The next part of the quantitative process, as a result, is a bit more traditional, as it’s things like financial statement analysis, management team interaction, building profiles, and more that makes sense for an investor.
“What’s really interesting from our perspective,” Lorusso continues, “As the new solutions segment grows at a higher profitability rate, and at a better retention rate for consumers with more visibility, it looks to us like the market is eventually going to put a higher multiple on that business, and we’re willing to own it while the market comes to identify what we perceive as an unrecognized opportunity.”
In regards to ESG investing, Klein believes it to be highly nuanced. In relation to that, Changebridge’s strategy is incredibly thoughtful. That may not mean necessarily finding companies with great analyst coverage, however, there are under-the-radar ESG opportunities.
Klein states, “Exclusionary investing is an insufficient approach to ESG investing, and, frankly, we believe the analysis of whether a company is making meaningful improvement actually requires active management.”
He also notes how the companies are actively making decisions to improve their ESG characteristics improve the bottom line opportunity. So, Changebridge is finding the companies that don’t have ESG analysis and coverage, so they can take advantage of misunderstood opportunities and capitalize on when those opportunities come to fruition.
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