In September, Capital Group expanded its already popular active ETF lineup. The five new ETFs included two new equity ETFs, two new fixed income ETFs, and one asset allocation ETF. We had a chance to dive into a pair of these ETFs and understand what management finds appealing heading into 2024.
“Our most recent active ETF launches are a continuation of our desire to equip advisors with the building blocks they use most frequently to build robust models for their clients,” explained Holly Framsted, head of global product strategy at Capital Group. Framsted and two portfolio managers met with VettaFi at the New York Stock Exchange this week.
Looking for Attractive Dividend Growers
One of the new ETFs is the Capital Growth Dividend Growers ETF (CGDG ). The fund’s management actively selects shares of companies with a strong combination of current yield and dividend growth over the long term. It recently had 49% of assets in the U.S. It also had a mix of developed European and Asian stocks, and a 7% stake in emerging markets.
“The market is in a volatile transition phase. It’s digesting higher interest rates brought on by elevated inflation," noted Grant Cambridge, equities portfolio manager at Capital Group. “Higher borrowing costs take time to impact businesses, individuals, and the broader economy. There are well-founded concerns for many companies. A narrow group of anointed companies are leading the market. That provides an opportunity to invest in a number of interesting, overlooked companies. We are finding companies that can best adapt to the changing environment and grow the dividend on a persistent basis.”
CGDG’s largest positions included BP, Broadcom, Equinix, Nippon Telegraph and Telephone, Philip Morris International, and Taiwan Semiconductor.
Blending Stocks With an Active Bond ETF
Another relatively new Capital Group ETF is the Capital Group Core Balanced ETF (CGBL ). “CGBL is built to serve the core of portfolios by offering security selection, asset allocation, and rebalancing in a tax-efficient vehicle,” added Framsted.
The ETF recently had 63% of assets in equities with the remainder in global bonds or cash. The fund allocates to debt securities by investing in one or more of Capital Group’s fixed income exchange traded funds. The equity stake was split between dividend payers and growth stocks like Meta Platforms and UnitedHealth Group. Via the Capital Group Core Plus Income ETF (CGCP ), CGBL had a mix of investment-grade and speculative grade bonds.
Where Risk Is Warranted in Fixed Income
“Risk sectors such as credit and MBS look more attractive than we might have thought earlier in the year,” commented John Queen, fixed income portfolio manager for Capital Group. CGCP had 44% of assets in mortgaged-backed obligations. It also had 31% in corporate debt instruments, and 13% in Treasuries at end-September.
“That view has less to do with changes in valuations and more to do with the economic environment which looked quite tenuous following the bank failures of March 2023," he added. "Investment-grade corporate bonds offer reasonable spreads over Treasuries. They also offer a solid fundamental picture as companies extended their maturity stack during the extremely low rates of the past few years. Mortgage-backed securities offer attractive current prices and should do particularly well if interest rate volatility declines.”
CGCP is one of the six Capital Group ETFs managing more than $1 billion in assets. This group of actively managed ETFs is led by the Capital Group Dividend Value ETF (CGDV ) and the Capital Group Growth ETF (CGGR ).
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