On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the Capital Group Core Plus Income ETF (CGCP) 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: Capital Group Core Plus Income ETF (CGCP)
Chuck Jaffe: One fund on point for today. The experts talk about it. Welcome to the ETF of the Week. Yes, it’s ETF of the Week, where we examine trading newsworthy, unique, and intriguing exchange traded funds with the experts at VettaFi.com. VettaFi has a suite of tools for research that will make you a savvier, smarter, and better investor in ETFs. Todd Rosenbluth is head of research at VettaFi. Let’s dig into it.
Todd Rosenbluth: Good to be with you again, Chuck. Thanks.
Chuck Jaffe: Your ETF of the Week is … ?
Todd Rosenbluth: The Capital Group Core Plus Income ETF (CGCP).
Chuck Jaffe: This is an interesting bond fund. Intermediate bonds. Now, that’s an interesting discussion to have at this point in the yield curve discussion by itself. But is there more to it than that?
Todd Rosenbluth: As you mentioned, this is an actively managed intermediate bond fund that can take on some additional credit risk. That’s the plus income part of it. So this fund has roughly 10% to 15% exposure to noninvestment-grade bonds. The fund is yielding at 5.5%. It’s relatively cheap for an actively managed bond fund because Capital Group is using its scale to its advantage.
CGCP is about a year and a half old, but it outperformed in its first year the broader indexes. It’s outperforming to start 2024. And given this uncertain interest rate environment, we think active management can make sense within the fixed income space.
Chuck Jaffe: OK. Now, it’s also active management from Capital Group, longtime veteran fund managers, not that experienced on the ETF side. But this fund’s almost $2 billion, and it hasn’t been around very long. So obviously they’ve got some juice here. But how do you generally like their ETF offerings?
Todd Rosenbluth: So Capital Group came to market just over two years ago and they launched their first products. They’ve been very successful; $20 billion overall. Now, many people are familiar with Capital Group as the firm behind the American Funds Mutual Funds Suite. So they’ve got equity in fixed income products. They’ve got a depth in their research team to be able to support their equity in fixed income products.
And I think that’s coming to bear within this relatively new active fixed income ETF. This is not a two-year-old management team. These are people who’ve worked together in some capacity of Capital Group and are now part of this ETF, and they’re certainly demonstrating their success.
Chuck Jaffe: You talked about what this fund gets into, and at VettaFi what you guys do, and what you particularly have always done in your career is try to look at holdings. And so it’s interesting to me that here you’re talking about the yield on a fund that puts a piece of its portfolio into, unrated, unregistered, junky-ish securities at this point in the scale.
That’s part of what you want to do. Is that part of the appeal, that they’re going to a spot that a lot of folks are avoiding right now?
Todd Rosenbluth: We think more advisors, and more investors are willing to take on credit risk in 2024, given where we are in the Fed cycle. The Fed is likely to be cutting interest rates probably by the middle of 2024. And now it feels like taking on credit risk is being rewarded. So we like the fact that this active management team has the ability to do so in BB or B-rated or some unrated bonds, but yet it still has its core within the investment-grade universe.
You get a mixture of mortgage bonds, of corporate bonds, some Treasury exposure with this fund. And we’ve gotten to know them through some of our virtual events. And this team seems top-notch in their expertise, in their ability to be flexible in their approach, and where they’re putting their money to work.
We think this is a good fund to take a closer look at.
Chuck Jaffe: Now, that said, the yield you mentioned was 5.5%. It just so happens that [the weekend before last,]somebody was asking me, can you get more than 5% in a savings account? And the answer is, yes, you can. It’s so worth the risk to be doing this at a point where we have so much uncertainty with what the Fed is going to do.
Todd Rosenbluth: With fixed income, many people want a combination of stability of income and some capital appreciation potential. And so that’s what this fund is attempting to do. It’s looking to generate a return above its overall yield through investment selection, through a top-down and bottom-up approach to picking bonds. If you’re in a savings account, more power to you.
That money is stable and safe, but you’re going to not get an additional return off of that. There’s also less risk. This is a fund that makes sense for people who are willing to take on a little bit more risk within their fixed income exposure in exchange for more income, in exchange for higher returns over the next year or two.
Chuck Jaffe: Obviously, a lot of investors already have some measure of a bond fund. Why would you want to add this? What are you hoping this is going to do? And if you’ve got something that covers the intermediate space, do you look at making a change to this fund?
Todd Rosenbluth: So, for many ETF-oriented investors, for their fixed income exposure, their bond exposure is in something that’s passively managed tied to the Bloomberg Agg Index, whether it’s an iShares or Vanguard product or others. This is active management. People believe in active management.
Then in the fixed income universe, they’re still early in adopting a actively managed fixed income ETF. This fund itself is relatively new, so I think that’s going to help move this along.
This is a fund for somebody who believes in active management, wants the ETF structure, and wants it to come from a firm with a proven track record like Capital Group.
Chuck Jaffe: It’s the CGCP, the Capital Group Core Plus Income Fund, and the ETF of the Week from Todd Rosenbluth at VettaFi. Todd, talk to you again next week.
Todd Rosenbluth: Sounds great, Chuck.
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And I’m Chuck Jaffe. You can learn all about my hour-long weekday podcast by going to MoneyLifeShow.com or by searching wherever you find great podcasts. And if you’re searching for more information on investing in exchange traded funds, be sure to check out VettaFi.com.
It’s a great site, with plenty of tools to help you out. They are on Twitter @Vetta_Fi. Todd Rosenbluth is their head of research, and my guest. He’s on Twitter too, at @ToddRosenbluth. ETF of the Week is here for you every Thursday. Don’t miss one, by following along with your favorite podcast. We’ll see you next week. Until then.
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