The ETF landscape is undergoing a remarkable transformation, with actively managed strategies gaining significant momentum. One of the main drivers behind this shift has been the increasing number of asset managers choosing the ETF structure over traditional mutual funds for their active strategies.
This pivot towards ETFs isn't merely a fad; it's a reflection of the inherent advantages they offer. Compared to mutual funds, ETFs often boast superior tax efficiency, enhanced accessibility, and in many cases, more competitive fee structures.
Reinforcing this trajectory, the 2023 Trackinsight ETF Survey unveiled a compelling statistic. In the Americas, 80% of respondents expressed a preference for active strategies when housed within an ETF compared to a mutual fund.
This is a significant endorsement of the ETF structure and underscores the ongoing transition from mutual funds to ETFs, especially in the active management domain.
The NYSE is quickly becoming a hotspot for these actively managed ETFs. Capital Group, recognizing this evolving preference, has expanded its product line-up with the recent unveiling of five new actively managed ETFs.
Among their latest entrants are the Capital Group Core Balanced ETF (CGBL), the Capital Group Core Bond ETF (CGCB), the Capital Group Short Duration Municipal Income ETF (CGSM), the Capital Group Dividend Growers ETF (CGDG), and the Capital Group International Equity ETF (CGIE).
Here's a look at what these ETFs have to offer and how they can potentially fit in a portfolio.
The Fixed-Income Funds
At a 0.27% expense ratio, CGCB ranks among some of the cheapest actively managed bond ETFs in the market. In comparison, the long-standing and popular PIMCO Active Bond ETF (BOND) charges nearly twice as much at 0.55%.
With an average duration of 6 years, CGCB stacks up similar to most intermediate duration aggregate bond funds, albeit with a higher yield-to-worse of 6.2%. However, the ETF's unconstrained approach allows it to invest both in non-U.S. bonds, warrants, rights, and derivatives to enhance return and manage risk. So far, it has attracted $34 million in AUM.
Investors looking for a more tax-friendly alternative can opt for CGSM, which holds high-quality municipal bonds selected for low interest rate sensitivity. With an average duration of 2.4 years yet with a competitive yield to worse of 4.3%, this ETF offers a good balance of interest rate risk and return.
CGSM's objective is to outpace the yield from the average passively managed tax-exempt money market fund. Uniquely, this ETF is able to invest up to 20% of its portfolio in private activity bonds, which are those that fund private, for-profit organizations.
The Equity Funds
On the equity side, CGDG provides a dividend growth strategy at a 0.47% expense ratio. Unlike some dividend growth ETFs that follow the methodology of a benchmark index, this ETF actively selects stocks Capital Group identifies as having both attractive current yield and dividend growth potential.
With a portfolio of just 76 holdings, this ETF is fairly concentrated. While the active share percentage is unknown at this time, its composition looks to differ significantly from most benchmark indexes. The ETF has a global focus, with around 50% in U.S. equities and the rest in developed markets.
For investors seeking an international-only focus, Capital Group also offers CGIE, which charges a 0.545% expense ratio. The objective of this fund is to provide exposure to international developed markets, while actively managing holdings to reduce volatility and downside risk.
Accordingly, the ETF will select stocks identified as having traits associated with better resilience to drawdowns, such as better balance sheets and higher dividend payments. CGIE is also fairly concentrated with 69 holdings at present, with 61% hailing from European countries.
The Asset Allocation Fund
In recent years, numerous ETF managers have launched all-in-one, "asset allocation" ETFs that provide tailored mixtures of stocks and bonds. Popular examples include the iShares Core Moderate Allocation ETF (AOM), which wraps numerous iShares index ETFs, and the Avantis Moderate Allocation ETF (AVMA), which has a factor investing angle.
Capital Group's entrant here is CGBL, which targets an allocation of anywhere from 50% - 75% in global equities and the rest in fixed-income via other underlying Capital Group ETFs. On the equity side, the ETF is expected to target both growth and dividend stocks. CGBL charges a 0.33% expense ratio.
This content was originally published by our partners at ETF Central.