Long-time ETF industry veteran and CEO and CIO of Astoria Advisors, John Davi, launched his firm’s third ETF at the start of October. The Astoria US Quality Growth Kings ETF (GQQQ ) joined the $145 million Astoria US Equal Weight Quality Kings ETF (ROE ) and the $65 million AXS Astoria Inflation Sensitive ETF (PPI ).
Davi has spoken on VettaFi webcasts and at the Exchange conference as an ETF strategist. He answered some of my questions.
VettaFi: Astoria launched a new quality growth ETF recently. What makes it unique relative to established growth ETFs?
Davi: GQQQ combines growth investing with a quality overlay. We find that there are few products available that do both, and none approach it exactly like GQQQ. GQQQ aims to participate in growth while mitigating volatility and targeting higher risk-adjusted returns by selecting growth companies that exhibit robust quality characteristics such as those with attractive ROE, ROA, and ROIC. The fund aims to deliver higher risk-adjusted growth-like returns over long periods of time.
We strive to provide more downside protection compared to other growth products which don’t have a quality overlay. In the case of the Nasdaq 100, which is one of the most popular growth indices, there are very few criteria to be included into the index. The 100 largest non-financial companies listed on the exchange are included in the index. In the case of the S&P indices, they have several criteria but one of the key ones is that they require companies to have four quarters of net positive earnings, which essentially is a quality filter. In short, we want to provide investors with growth exposure by investing in higher-quality stocks.
Response to GQQQ
VettaFi: What has the initial market response been?
Davi: The reception has been positive. Clients are constructive on the concept of combining growth with quality investing which is a relatively new concept for many of the advisors we have spoken with. As we all know, owning value stocks has been a relatively difficult proposition over the past decade, but growth and quality investing have done relatively well (past performance is not indicative of future results).
Clients are also acknowledging that the run up in the Magnificent Seven stocks has been extensive and are open to discussing diversifying away into other stocks, sectors, and themes. GQQQ currently has five of the Magnificent Seven stocks and collectively, they make up approximately 25% of the ETF. In the Nasdaq 100 Index, the Magnificent Seven represent approximately 43% of the fund.
VettaFi: Quality is part of your investment approach at Astoria. What makes GQQQ different than ROE?
Davi: GQQQ has 40% overlap with ROE. For background, the S&P 500 and NASDAQ-100 indices, which we find advisors often times use in tandem, have 47% overlap. With ROE, the fund equal weights 100 of the highest quality stocks so each stock has a 1% weight. GQQQ uses a modified market cap weight, so it actually has quite a different risk profile despite the overlap.
Moreover, ROE is optimized against the broader U.S. equity market while GQQQ is optimized to broader U.S. growth universe. Hence, they have quite varying sector exposures. We like using GQQQ and ROE to offset the large/mid market cap and equal-weighted risk with each other. Lastly, ROE is rebalanced to equal weight quarterly while the weights of the constituents in GQQQ are not subject to equal weighting and are rebalanced less frequently.
Astoria and the ETF Community
VettaFi: You are hosting a Macro Summit in October that VettaFi is honored to be a part of. Why is bringing the community together important to you?
Davi: It’s been a very confusing bull market. The S&P 500 is up 52% since the start of 2023 through Oct. 7th and there’s been a fair amount of disdain for equities. Remember the concept from market pundits about just T Bill and Chill; given the economic uncertainty and the high short rates? If investors sat in T Bills, they would have missed a significant bull market which can be quite destructive for long-term wealth accumulation.
Astoria wanted to educate advisors on the best way to navigate these markets. Moreover, the Fed is about to embark on a rate-cutting cycle despite unemployment at 4.1% and GDP at 3%. Astoria’s Macro Summit will be discussing all portfolio construction topics ranging equity and fixed income outlooks, bitcoin, targeted fixed income products, return stacking, gold, the future for ETFs, how to use quant tools to build better investment outcomes, and ETF model portfolios. For more information, advisors can refer to our website.
VettaFi: Thanks John. I’ll also see you at Exchange in Vegas in March 2025.
Davi: Like the infamous Bart Scott said after the New York Jets defeated the New England Patriots, ‘Can’t wait!’
Please note that Astoria Portfolio Advisors serves as a sub-advisor to the Astoria US Quality Growth Kings ETF (GQQQ), the Astoria US Equal Weight Quality Kings ETF (ROE), and the AXS Astoria Inflation Sensitive ETF (PPI). Please consult your financial advisor and review the prospectus to evaluate your suitability and investment risk tolerance before purchasing the GQQQ, ROE, or PPI ETFs. As of the time of this writing, Astoria held positions in GQQQ, ROE, and PPI on behalf of its clients. The Funds (GQQQ and ROE) are distributed by Quasar Distributors, LLC. The Funds’ investment advisor is Empowered Funds, LLC, which is doing business as ETF Architect. The Fund (PPI) is distributed by ALPS Distributors, Inc, which is not affiliated with AXS Investments.
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