On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the Natixis Vaughan Nelson Select ETF (VNSE) with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.
ETF of the Week: Natixis Vaughan Nelson Select ETF (VNSE)
Chuck Jaffe: One fund on point for today, and we are the experts to talk about it. This is the ETF of the Week. Yes, welcome to the ETF of the Week, where we get the latest take from the experts at VettaFi, who have a full suite of tools that are going to help you be a better, smarter, and savvier investor in exchange traded funds.
Todd Rosenbluth is the head of research at VettaFi. He’s my guest here every week. And of course, if you want to get more information, it’s VettaFi.com. Todd Rosenbluth, great to see you again.
Todd Rosenbluth: Great to be with you, Chuck.
Chuck Jaffe: Your ETF of the Week is?
Todd Rosenbluth: The Natixis Vaughan Nelson Select ETF (VNSE).
Chuck Jaffe: The Texas-born Natixis Vaughan Nelson Select ETF (VNSE). Now, this is a really interesting ask of the fund, a small fund, and it’s got a great track record. Why this fund now?
Todd Rosenbluth: Well, you covered some of it, Chuck. It has a strong track record. This is a five-star Morningstar fund. It’s relatively small. I think under $50 million in assets under management, but it’s concentrated. It holds some of the better companies that are undervalued but have a growth angle. So it owns companies like Microsoft, but it also owns companies like ICE and Sherman Williams.
So you’re getting beyond the mega-cap companies with this actively concentrated equity fund. And we think it’s just an under-the-radar fund that deserves more attention.
Chuck Jaffe: And a really interesting management team. I’ve talked to the folks at Vaughan Nelson as well. I like him a lot. But under $50 million, that’s kind of, hey, are we serious at this point with an ETF? So let’s start there: when you’ve got a fund with a great record, but it’s small. Small means nimble. That’s good.
But small sometimes doesn’t mean that fund companies committed to it, so it’s under $50 million. What’s your general take there?
Todd Rosenbluth: So I think that a firm like Natixis is committed to the ETF space. They’ve actually been expanding their ETF lineup in recent years. This is a fund that just passed its three-year track record. That’s why it has a Morningstar star rating. But it came out of the gate strong. It was a top-performing fund in its first calendar year.
And yes, a fund that small should be eye-catching for many investors. But unless you’re putting in millions of dollars directly into the fund, you’re unlikely to impact the overall flow and volume. And I mentioned it owns companies like Microsoft and other mega-cap companies. So new shares can easily get created. So many investors will look at the trading volume and the assets under management and walk away from a fund.
This is one of those, and you should continue to do your homework. Learn more about the team behind the fund, learn more about its holdings, and learn more about its track record. And then decide, as we at VettaFi think, that this is a fund worthy of more attention.
Chuck Jaffe: You pointed out this fund got out of the box great in 2021, its first calendar year, it was up 40%. Now, do you worry at all that that kind of skews things? Because we always talk about when you have a great time, you kind of regress to the mean over time. As an active manager, this fund is still well above average. That first year was so good. Don’t you worry that that was a bit of a red herring?
Todd Rosenbluth: I do think that there is a pendulum swing with active management. It is hard to shoot the lights out year after year after year. And you want to look at a three-year track record, at least with an active equity fund that is focused on stock picking and concentration. And getting its best ideas into the portfolio. But I think what’s inside the fund, you’ve got some of those companies that have led the market higher.
And actually, this fund had a good year in 2023. It’s come out of the gate relatively strong again in 2024. But it’s more diversified than people might think. It has just a couple of dozen holdings within the portfolio, because it’s got exposure to various sectors, not just technology.
Chuck Jaffe: But even with that, a couple of weeks ago, you and I were talking about the brand new spot bitcoin funds. And the one thing we knew is that any investor who was looking at them didn’t have anything like it in their portfolio, even if they had one of the few bitcoin or crypto things that was out there before we got to spot bitcoin funds.
It wasn’t this way here with this fund. Well, yes, it’s actively managed, it’s concentrated. It’s got a good track record. But you are still talking about stocks that, if you’ve got a well-diversified portfolio, you’ve got stuff like this in your portfolio. So how do you use this fund? What percentage of a portfolio do you allocate to it, etc.? Because unless you are an absolute beginner, you’re covering the same ground that this fund covers.
Todd Rosenbluth: We think that a concentrated active fund can be a great complement to an S&P 500-based strategy. So yes, there may be some of the same holdings within the portfolio, but this is the management team behind who sees the best ideas. They have a couple of dozen strongest conviction ideas. And so you can overweight exposure to some of those companies within the portfolio.
So Sherman Williams is in the S&P 500 and so is ICE and so is Accenture. But they’re much further down. They’re not top 10 holdings as they are with this ETF. So you get you can combine this ETF with a low-cost core strategy and get some of the benefits of active management within your broader portfolio without relying just on one manager to continue to outperform your fee. Or a blended approach probably makes more sense with a fund like this.
Chuck Jaffe: That’s going to raise another question. Because you have now taken over ETF of the Week from Tom Lydon, who was doing it for over a decade. And I want my audience to understand how you build portfolios and the rest. So that core-and-explore idea that is great sounds perfect, like what this fund is right for.
But for a lot of folks, they’ve already got funds that do some of that. How many funds do you want to do that? Do they give you that exploration and have that manager with a go-anywhere kind of approach? Do you want to have two or three of those, or does that just give you a closet index fund?
Todd Rosenbluth: If you’re using the S&P 500 as your core, you maybe want to add one other large-cap fund that’s actively managed to add some diversification within the portfolio. You’re not just concentrated in the Magnificent Seven companies. You want some of that diversification and then you can go down to cap structure. So this is a large primarily large-cap core fund as opposed to something that’s more small-cap or internationally equity focus.
So probably one or two funds to serve your large-cap core makes sense. You don’t want to have too many funds that are concentrated in active management. Unless they’re consistently owning different types of stocks. So I think it’s important to continue to look at the underlying holdings of a fund on a regular basis. Make sure this ETF, VNSE, holds companies that make sense to you, that within the portfolio, it’s consistent in the overall approach.
But this is a good fund to take a closer look at despite its relatively low assets under management.
Chuck Jaffe: And if somebody has their core holdings already but they hear us talking about it, they go do their research on VNSE, and you wouldn’t worry about switching. Because basically, one of the things that we know about ETFs, they’re sort of inherently tax efficient.
Todd Rosenbluth: Yes, that’s right. This is an actively managed equity ETF. So you’re getting the tax benefits of the ETF structure. If you’re in a tax-deferred account, that’s even better. But this ETF, like other actively managed equity ETFs, tends to have little to no capital gains implications. It’s just an ETF. You get the benefits of the creation and redemption process.
So, if you don’t own this ETF, or you haven’t heard of this ETF, you should take a closer look at it and see if it makes sense for your portfolio.
Chuck Jaffe: It’s the VNSE and the Natixis Vaughan Nelson Select ETF, the ETF of the Week, from Todd Rosenbluth at VettaFi. Todd, great stuff. Talk to get next week.
Todd Rosenbluth: See you next week, Chuck!
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. I am Chuck Jaffe, and you can read all about my hour-long weekday podcast at MoneyLifeShow.com or by going wherever you find great podcasts. And if you want to get more information on great ETFs, make sure you check out VettaFi.com.
They have a full suite of tools there that will make you a better investor in exchange traded funds or on Twitter or X at @Vetta_Fi and Todd Rosenbluth is their head of research. My guest, he’s on Twitter, too. He’s @ToddRosenbluth. ETF of the Week is here for you every Thursday. We’ll be back next week. Until then, happy investing, everybody.
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