Touchstone Investments now has six actively managed ETFs. It seeks to bring its “distinctively active” mutual fund approach to meet advisors where they are focused. Their first ETFs began trading in the summer of 2022. As of mid-September, the firm manages approximately $250 million in assets. It recently celebrated at the New York Stock Exchange with a closing bell ringing.
Touchstone provides ETF investors access to institutional asset managers. The teams behind these ETFs demonstrate high conviction in managing the active strategies.
Active ETFs Are Built Different Than Index ETFs
“Being different from the benchmark is a prerequisite to outperforming the benchmark”, explained Matt Barry, Vice President, Product Management & Head of Capital Markets at Touchstone Investments. “Our approach is based on academic research that builds on that concept. Our own research indicates that a high proportion of the active management universe has characteristics that substantially diminish the potential for outperformance. That’s why we focus on the subset of distinctively active strategies, designed to best position investors for the benefits of active management.”
For example, the Touchstone US Large Cap Focused ETF (LCF ) is sub-advised by Fort Washington Investment Advisors. LCF held just 47 holdings and as of June 2023 had a 63% active share relative to the S&P 500 Index. (a percentage higher than 60% is considered highly active).
What’s Inside an Active ETF Matters
Management seeks to invest in businesses with a sustainable competitive advantage that are trading below Fort Washington Investment Advisors’ estimate of the companies’ intrinsic value. In addition to stocks like Apple and Microsoft, the ETF had 2%-plus positions in Cencora, HCA Healthcare, and Monster Beverage.
Touchstone has four other income-focused active ETFs. Three of them invest in fixed income while the other focuses on dividend-paying stocks.
“We believe the current market is an opportune environment for advisors to integrate active ETFs into portfolios to generate income”, added Richard Koerner, Vice President, Senior ETF Specialist at Touchstone Investments. “With interest rates at higher levels than they have been in years, we are seeing meaningful opportunities across the yield curve. We’re also seeing advisors look to generate income through high-quality dividend equities.”
A Range of Income Focused ETFs
The Touchstone Dividend Income ETF (DVND ) owns approximately 50 companies that have historically grown the dividend and trades at a perceived reasonable valuation compared to its intrinsic value. BlackRock, Dupont de Nemours, IBM, and KLA Corp were among the ETF’s top-10 holdings.
The Touchstone Ultra Short Income ETF (TUSI ) holds investment-grade bonds and has an average duration of 0.6 years. The portfolio is largely a mix of asset-backed securities, corporate bonds, and non-agency commercial mortgage-backed securities (CMBS).
The Touchstone Strategic Income Opportunities ETF (SIO ) has an average duration of 5.1 years. The actively managed fund’s sector exposure is largest toward investment-grade and non-investment-grade corporate bonds. It also has exposure to TIPS, Treasuries, and emerging market debt.
The Touchstone Securitized Income ETF (TSEC ) is the newest of these ETFs, launching in July 2023. TSEC invests in securitized fixed income securities including residential mortgage-backed securities, CMBS, asset backed securities and collateralized loan obligations.
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