On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth talks about the American Century U.S. Quality Value ETF (VALQ ) with Money Life host Chuck Jaffe. The pair covered a range of topics related to the fund, providing investors with a deeper understanding of the ETF. Additionally, they shared details about the ETF conference, Exchange, which is taking place from March 23 to 26.
Chuck Jaffe: Welcome to the ETF of the week, where we get the latest take from Todd Rosenbluth, the head of research at VettaFi. If you go to VettaFi.com, you’ll find all the tools you need to be a savvier, smarter ETF investor. And to get more details on the new, newsworthy, trending, and timely exchange traded funds that we talk about here.
VettaFi by the way, is also the organizer of Exchange, the largest ETF conference geared toward financial advisors. And if you’re hearing this and you haven’t registered, you’ve got just a little time left because it’s being held March 23-26 in Las Vegas. Stay tuned after Todd and I are done here for a message. You can still get in on short notice to Exchange. Todd Rosenbluth, great to chat with you again.
Todd Rosenbluth: It’s great to be back.
Chuck Jaffe: Your ETF of the week is…
Todd Rosenbluth: The American Century U.S. Quality Value ETF (VALQ)
Chuck Jaffe: VALQ. The American Century U.S. Quality Value ETF. It’s an interesting choice, Todd. Because it’s a fund that has a good track record, but its track record is not “oh, we’re killing it in the category.” Its track record is more kind of “we’re consistent.” So, is consistency what you’re shooting for here? Because that’s my take on this fund.
Todd Rosenbluth: So that’s one of the benefits we think of of VALQ. This is a slightly more defensive, slightly more value-oriented core equity position. The reason I say that is it’s diversified across the sectors. But it’s more of the undervalued, higher-quality stocks that you would find within many of those sectors. So we’ve seen a lot of volatility in the market, in February and in the beginning of March.
We think many investors are looking to still stay in the equity markets, but be able to have a portfolio that can help them sleep at night. So this is not a slow, stodgy portfolio. But by taking valuation and quality into account in the construction of the index, we think that that helps.
And I want to make sure I get this out early: VettaFi is an index partner with American Century for this. Folks should certainly look at what’s inside the portfolio and do their own homework for that. This is a strong ETF to us.
Chuck Jaffe: Quality has kind of become everybody’s favorite factor. It’s supposed to do really well. But I will point out, it’s still a relatively new factor. And we’re starting to get it tested in ways that it hasn’t before. Do you think we’re going to see any surprises among the quality funds? I mean, not necessarily specific to this one, but as a guy who evaluates ETFs where quality is now in a lot of fund names, are we going to wind up finding out, whose definition of quality stands up to turbulent markets now?
Todd Rosenbluth: Well, we certainly are. So quality is one of those phrases that you think you know before you see it. And then even when you look inside the portfolio, it may surprise you. So let’s just talk about examples of stocks that are inside VALQ. Johnson & Johnson is a top position. Procter & Gamble is a top position. Walmart is a top position.
The fund actually has its most exposure to the technology sector. But not Apple and Microsoft and Nvidia necessarily. IBM, TE Connectivity, Amdocs. Those are examples of the technology stocks within the portfolio. So to me, quality is a company that has a strong balance sheet, consistent earnings records. That’s part of the criteria that’s used here. And then is a valuation filter and is incorporated into the methodology.
But it’s important to know what you’re getting, because my definition of quality and your definition and someone else’s definition might be quite different.
Chuck Jaffe: In terms of how this fits in with a portfolio. as much as I love some of the stocks you mentioned, some of which are personal, individual holdings in my portfolio, they’re also big name companies that are in people’s plain-vanilla growth funds. And a plain-vanilla growth fund is different from a quality fund. Only that plain-vanilla is not focused on quality or what have you, but they’re pretty similar in some cases.
So who should be looking at this and who doesn’t need this? Because they’ve already got these tools in their box.
Todd Rosenbluth: I think, actually, Morningstar thinks of this as a large-cap value strategy, and that some of the stocks are going to tilt a little bit more towards core. Some of the stocks might not be as large a cap. Amdocs is one of those ones that I mentioned earlier. And I know that that’s not the same size company as Johnson & Johnson, or Procter & Gamble.
This can fit into your portfolio as part of your large-cap exposure, and it’s tilted more toward value. So you mentioned growth earlier. I think people will look inside this portfolio and not see those same growth stocks that they might find within the Q’s, for example, that’s dominated by Nvidia and used to be dominated more by Tesla, which has sold off.
Quite notably. We’ve seen a rotation in the market. The first part of the year favored the value-oriented stocks more than the growth-oriented stocks, and that’s helped VALQ to hold up, as we’re recording this, more than the broader marketplace. It doesn’t mean we’ll always do better than the broader market in times of volatility. But I think of this as a safer way of getting large-cap equity exposure.
Chuck Jaffe: Does that mean that the money for this fund, if you’re adding it to your portfolio, comes from your large-cap growth or large-cap value, or large-cap blend that maybe put the more emphasis on playing defense right now?
Todd Rosenbluth: So I think playing defense makes a lot of sense. We’ve seen the volatility in the marketplace. There’s the old adage of time in the market not timing the market. And so this is what I’m talking about as a tactical commentary. But if this volatility in the marketplace has made you more nervous and concerned that certain stocks are selling off sharply within your portfolio and you’re not getting that same level of diversification you thought you were getting with a growth-oriented ETF, this can be able to fit into the portfolio.
So what would you sell out of if you were to sell out or something to put into it? I will leave that to folks. But this is going to be different than what you’re going to have, what you probably have more exposure to, of the growth side of the ledger. This is a bit more defensive.
Chuck Jaffe: Let’s talk a little bit about portfolio construction. Even if we’re not talking about where the money’s coming from, which is when you’re looking at large-cap, etc., admittedly, different style boxes, but how many large-cap funds would you suggest somebody owned before you just have MUD, you have a closet index fund or something along those lines because you bang the drum on active management, which is great, but there’s no denying too many funds in any one category they’re just trading with each other, and we’re paying the freight.
Todd Rosenbluth: Right. So this is a smart beta index fund. Or I would think of more of a factor 2.0. The next wave of these factor-oriented strategies. This is not an active strategy. But I do think you want to make sure you don’t have too many ETFs within your portfolio. We talk week after week, and I’ve come at you with more than one large-cap strategy.
You obviously have to pick and choose which of the ETFs that we talk about can make sense. But you probably want to have a large-cap growth and perhaps a large-cap value oriented ETF to be able to dial up or dial down the growth of the value exposure that you have, or if you want to have the ability to dial up growth and value.
And so a growth ETF in this hand can go hand in hand. And you can have an equal weighting. You find yourself with a core or you can have an overweight value which is doing better than growth or growth which did better in the past. I don’t think you want to weigh down your portfolio with too many different ETFs, maybe two or a third or large-cap ETF is appropriate. But you’re going to have some overlap in the construction and what’s in the portfolio.
This is an ETF that has over 200 positions — I think close to 230 positions. So you’re getting that level of diversification with VALQ.
Chuck Jaffe: And that’s why VALQ, the American Century. U.S. Quality Value ETF is the ETF for the week from Todd Rosenbluth at VettaFi. Todd, great stuff, as always. Safe journeys to Exchange. We’ll talk to you again next week.
Todd Rosenbluth: Sounds great. Thanks a lot.
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And I am Chuck Jaffe and I’d love it if you’d check out my weekday podcast at moneyliveshow.com or on your favorite podcast app. And if you’re looking for your next great ETFs, check no further than VettaFi .com. They’ve got all the tools you need to make yourself a savvier, smarter investor in ETFS. They’re on X @Vetta_Fi and Todd Rosenbluth is their head of research, my guest here on ETF of the Week, he’s on X too @Todd Rosenbluth. The ETF of the Week is here for you every Thursday. So make sure you don’t miss an episode by subscribing or following along on your favorite podcast app.
And we’ll introduce you to another exciting ETF next week. Till then, happy investing, everybody.
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