VettaFi’s editor-in-chief Lara Crigger appeared on the recent ETF Prime hosted by Nate Geraci and highlighted recent interest around Dow Jones Industrial Average ETFs. Geraci was also joined by Capital Group’s Holly Framsted to discuss the rise of actively managed ETFs and how their firm is approaching this market. Additionally, Emerge Capital’s Lisa Langley explained the motivation behind their EMPWR platform, which is designed to support women investment managers.
DIA May be MIA In the Conversation but Quietly Dominates
One of the earliest ETFs to lunch was the SPDR Dow Jones Industrial Average ETF Trust (DIA), which launched in 1998. What’s old is new again, given the recent uptick in interest in Dow Jones Industrial Average ETFs on VettaFi’s platform. Crigger quipped, “it’s kind of like the Rodney Dangerfield of ETF land, ‘it don’t get no respect.'” Since the last week in October, there’s been a surge in research and excitement around all things related to the Dow. Crigger noted DIA’s engagement is up 200%.
Meanwhile, engagement around the newer Nationwide Dow Jones Risk-Managed Income ETF (NDJI) is up a whopping 900%. “It’s a little bizarre because nobody talks about the Dow,” Crigger noted, “but if you look at the numbers, DIA has $30 billion in assets. It’s one of the top 50 largest ETFs out there. It has decent daily trading volume – over one and a half million shares traded each day, and it’s covering an index so widely tracked that it appears on every crawl on CNBC, Fox Business, and all those other ones.”
Crigger pointed to VettaFi’s Jill Mislinski’s research showing the Dow is up 61% since 2000 on an inflation-adjusted basis. By contrast, the S&P is only up 46%, while the Nasdaq is at 26%. Looking at DIA’s nominal performance since inception is up 610%, outperforming the SPDR S&P 500 ETF (SPY), which is up 560%.
How the Dow Works
The Dow Jones Industrial Jones Index holds 30 large cap companies selected by a committee staffed by individuals from the S&P, Dow Jones Indices, and the Wall Street Journal. Sharing a fun cocktail party fact, Crigger explained, “Charles Dow, the namesake of the index, used to run the Wall Street Journal.” Given a large amount of discretion the committee of managers have, Crigger said the index is basically active management. Given the number of sectors the index excludes, including transportation, Crigger noted, “The Dow is less a reflection of the U.S. economy, more like ‘vibes’ of the U.S. economy.”
The Dow has several quirks. Geraci noted that Apple’s stock pt caused it to go from 11% weighting to 3% despite the company value being unchanged. Though Geraci thinks it seems like an arbitrary way to capture the market, he concedes that the Dow has done pretty well. “The Dow is down 8% this year. The S&P is down 19%,” he said.
Crigger pins the Dow’s stellar performance on several factors, including its tilt toward healthcare, financials, and industrials – all defensive sectors that have shown strength. “United Healthcare, that’s the largest holding in DIA, accounts for 11% of the portfolio, had a blowout earnings report,” Crigger noted. Goldman, the second largest holding, also did quite well this earnings season. Going through the components of the Dow, Crigger observed, “a lot of these stocks of value plays and value investing has been very appealing for investors this year. They offer solid fundamentals and less risk in an environment where three-quarters of advisors in our recent polls have been telling us that they expect recession to be coming next year.”
Having successfully cornered the market, DIA is easily the largest Dow-focused ETF out there, but Crigger said there are some alternatives, notably the aforementioned NDJI, a risk-managed income ETF in the vein of the Nationwide Nasdaq-100 Risk-Managed Income ETF (NUSI). NUSI comes with an options overlay to offer some protection and additional income. According to Crigger, “If you are looking for higher yield on top of the Dow exposure, NDJI does offer that. It has a distribution yield of over 7%, compared to DIA, which is under 2%.”
The Bulls and the Bears
Geraci pivoted to taking a moment to appreciate VettaFi’s new feature, Bull vs. Bear. With an inaugural edition focused on the bull and bear cases for Tesla and the latest edition tackling Meta, Crigger explained that this will be a regular Tuesday morning feature, with two VettaFi staff writers taking opposite sides of a hot investment topic with an eye towards ETFs that can play either side.
“What I really love about this column is that the writers can just roll up their sleeves and get down and dirty with the topic,” Crigger explained.
Capital Group’s Sprint
For the second segment, Geraci was joined by Capital Group’s Holly Framsted. In just about nine months, Capital Group has gathered $4 billion in AUM among its nine ETFs. An impressive run, given the murky market environment. Overall, Capital Group manages 2.2 trillion in assets around the world. As active ETF launches outpace passive ones, Capital Groups active ETFs may have shown up just at the right time.
“The regulations changed in 2019, enabling active managers to bring their investment solutions to the ETF vehicle,” said Framsted. ETFs have long been rising in popularity, but Framsted sees the abundance of passive ETFs fueling a situation where individual ETFs needed to be increasingly more niche. “I think financial advisors were yearning not to be the active manager, which is what they had become.”
Capital Group’s ETFs include the Capital Group Growth ETF (CCGR), which continues to grow despite the rough market sentiment toward growth, and the Capital Group Dividend Value ETF (CGDV), which is currently the Capital Group’s largest fund. “These two opposite ends of the investment spectrum, which have opposite results in the current market environment, are growing at an almost equal clip,” Framsted said. She sees this shared growth as evidence that advisors are building core diversified portfolios.
The three latest launches from Capital Group are centered on an active fixed income. Framsted noted that fixed income mutual funds are still four times the size of fixed income ETFs. Adoption has been slower, in part, due to there being fewer actively managed fixed income ETFs compared to actively managed fixed income mutual funds, according to Framsted. “What that tells me is that investors still largely prefer active management in this asset class and have been underserved active options in the ETF vehicle.”
The EMPWR Platform
For the final segment, Geraci discussed the EMPWR platform with Emerge Capital’s Lisa Langley. It is a sustainability focused platform offering ETFs run by all-women management teams.
“The idea came from experience, knowing that women portfolio managers have a tougher time winning mandates, no matter how talented they are or what their performance is,” Langley explained. “I’m a tremendous advocate of bringing great strategies forward, and I really wanted to try and do something about an injustice. I just don’t think they get their fair due no matter how strong their performance is.”
Geraci noted that less than 2% of U.S. active and passive funds are run by all female portfolio teams. Langley said, “one of the biggest issues we have in the industry is the lack of disclosure that is compelled. So all of this is just from self-reported stats because there are firms that refuse to report, and those are some of the largest firms.” Just 11% of portfolio managers are women. “It’s a tremendous inequity.”
Asked about what can be done to create more of an egalitarian financials services industry, Langley noted that regulatory compulsory disclosure about who is running the portfolio under the hood. Asking clients if they are interested in strategies run by women portfolio managers could also be helpful, as many people are unaware of the inequity. “Unfortunately, the women are the last to be hired and the first to be fired,” Langely said, “I believe that firms that have job openings for portfolio managers need to make a more dedicated effort to hire more women portfolio managers.”
Emerge has a suite of five ETFs, all run by experienced woman portfolio managers, with Catherine Avery’s Emerge EMPWR Sustainable Dividend Equity ETF (EMCA) leading the charge. Avery describes the strategy as “dividends with a purpose.”
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