On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the VictoryShares WestEnd US Sector ETF (MODL) 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.
VictoryShares WestEnd US Sector ETF (MODL)
Chuck Jaffe: One fund on point for today. The expert to talk about it. Welcome to the ETF of the Week. Yes, this is the ETF of the week, where we get the latest take from Todd Rosenbluth. He is the head of research at VettaFi, where they have a full suite of tools that’s going to help you be a better, smarter, savvier, investor in exchange traded funds.
And of course, here at the ETF of the week, we’re looking for trending, new, newsworthy, unique, and different ETFs. Wanna learn more about what VettaFi thinks of them? Make sure you go to VettaFi.com. Todd Rosenbluth, it’s great to chat with you again.
Todd Rosenbluth: It’s my pleasure, thanks.
Chuck Jaffe: Your ETF of the week is…
Todd Rosenbluth: The VictoryShares WestEnd US Sector ETF (MODL).
Chuck Jaffe: MODL, the VictoryShares WestEnd US Sector ETF. Now this is an interesting pick and model. The ticker kind of hints at a little bit about what they do, but why this fund now, and explain a little bit about methodology, because that’s super important with this fund.
Todd Rosenbluth: That’s right. So this is an actively managed ETF from VictoryShares, WestEnd being the subadvisor running this strategy. It’s active management with sector rotation, favoring sectors that stand out to the team from a macroeconomic environment and a market environment and avoiding those sectors that don’t stand out. So it holds individual stocks and large-cap stocks within those sectors, but as opposed to a broad index-based product that has representation to all of the sectors, this ETF is absent a handful of widely held sectors, and that stands out from the active management component.
Chuck Jaffe: This fund has basically a methodology that should hint at how you want to use it, right? That, that it’s not necessarily that you say, this will be my U.S. fund that I’ll tilt only towards these sectors. It’s more if I have core and explore, I’ll use this to say, okay, I’m adding some macro and lay it over it, right?
Todd Rosenbluth: Right. So there are some actively managed funds that are focused solely on bottom-up stock picking. This is taking more of a top-down approach. So currently it is overweighted exposure to the healthcare sector, and as a result, has companies like Johnson & Johnson and United Healthcare within its top ten holdings. It has a meaningful, roughly market stake within the information technology sector, but it has no exposure to financials.
It has no exposure to energy, it has no exposure to industrials, because those sectors, according to the management team, look unfavorable from an economic and a market environment. Now, it will rotate back into those sectors during certain times, as opposed to just buying individual stocks across the sectors, looking for the best within each sector.
Chuck Jaffe: How does that side work? Because when you say it’ll rotate back into certain stocks, that makes it seem like suddenly there’s going to be stock picking. And that’s not really it. It’s got to see the right metrics in the sector, right?
Todd Rosenbluth: That’s right. So it’s going to be more of a sector call as opposed to an individual stock call. It holds individual stocks. So, it’s not owning a sector SPDR ETF for its exposure. It’s owning large-cap stocks within that sector where there’s favorable representation from management’s view. And so that’s, to us, an interesting approach. We know actively managed ETFs have been gaining traction in the marketplace.
We’ve seen it, from covered call strategies to more bottom-up strategies. We’ve talked about some of them during our ETF of the Week. What caught our eye and our ear on this ETF is its top-down approach towards rotation. And in fact, we this week are speaking to the management team during our equity symposium. When people see and hear this, we will have just completed that symposium.
But I’m excited for folks to hear directly from the management team and we’ll do that event through our ETF Trends platform.
Chuck Jaffe: This fund, relatively new. It opened in 2022. The performance has been solid, not necessarily top tier, but based on how this fund is built — in other words, because you’re going to have a multitude of sectors, you know, normally you think sector fund if the right sector gets hot, you’re killing it in performance. But because this is going to have a multitude of sectors, would you kind of say, yeah, you’re going to get the juice of sectors without getting the volatility that comes on good or bad?
You know, you’re never going to be top 10%. You’re never going to be bottom 10%.
Todd Rosenbluth: Right. This fund is likely to do better or slightly better than the broader marketplace. In most environments. It’s holding its own versus the S&P 500 since it’s come out. Of course, this is an actively managed fund and so there is a fee that’s greater than you’d find for an S&P 500 index-based product. So I’m encouraged by how it’s performed so far.
Many people want to take more of a sector rotation strategy. Picking individual sectors, or picking a couple of stocks within that sector and then rotating from one sector to another. This is going to give you the benefits of professional management, and the benefits of use through an ETF wrapper. So it should be tax efficient in rotating across those sectors using individual stocks.
So we’re really excited about how this fund has performed out of the gate, and it’s relatively large for a fund that launched in 2022, with over 300 million in assets under management.
Chuck Jaffe: Is there a role, like… We’re talking about the role this plays in your portfolio. Is there a percentage in asset allocation that you would recommend? And again, does this work best for somebody that’s core and explore? Because if you’ve got somebody that’s doing macro top-down, this would just be another of those. I don’t know that you’d want to do it multiple times, but most people don’t have that.
So how much of a portfolio do you let this be, and where does the money come from if you’ve got a standard allocation?
Todd Rosenbluth: So we find that many advisors have low-cost core S&P 500 or Russell 1000 index-based ETFs in their portfolio. We think you could take a portion of that core equity exposure and get the benefits of professional management using MODL. So you’re not taking on significant sector bets, you have no — you won’t have zero exposure to financials in your portfolio.
You just would have reduced exposure in the current environment and you’d have slightly higher exposure to healthcare in the current environment of this portfolio as opposed to using this as your only equity ETF. Now, some people may want to do that. That’s swinging a bit more for the fences than I think most advisors are. But this is a great complement to a low-cost S&P 500 ETF.
Chuck Jaffe: It’s the VictoryShares WestEnd US Sector fund. MODL — M-O-D-L — the ticker for the ETF of the week from Todd Rosenbluth at VettaFi. Todd, great stuff. I’ll talk to you again next week.
Todd Rosenbluth: Thanks, Chuck. That was great.
Chuck Jaffe: The ETF of the week is a joint production of VettaFi and Money Life with Chuck Jaffe. Yup, that’s me. You can read all about my hourlong weekday podcast at MoneyLifeShow.com or by going to your favorite podcast app. But if you want to learn more about exchange traded funds, there is no better place than VettaFi.com. Check out their suite of tools and dig in and really learn about the funds you are investing in there on Twitter or X at @Vetta_Fi and Todd Rosenbluth, their head of research, my guest, well, he’s on Twitter too. He is at @ToddRosenbluth.
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