Three years after successfully launching its first ETFs, Capital Group has positioned itself for further growth. The firm announced today the rollout of eight ETF models portfolios. Advisors who work with third-party firms like AssetMark and Envestnet should soon have access to them.
Capital Group manages more than $55 billion in actively managed ETFs. The firm has quickly climbed the league tables with diversified products well-suited for asset allocation strategies.
The team behind these new models manages approximately $500 billion in multi-asset strategies. This includes target-date mutual funds as well as model portfolios that invest in the firm’s American Funds mutual funds.
What Makes Capital Group’s ETF Models Different
However, these new ETF model portfolios will exclusively use Capital Group ETFs. They will be strategically built based on an investor’s risk tolerance and generally have a mix of equity and fixed income ETFs. We believe that the active management will mostly occur at the bottom up with security selection inside the ETFs, rather than model managers making tactical shifts in the investment styles.
At one end of the risk spectrum is the Capital Group ETF Global Growth Model. This model invests only in equity ETFs, with 57% in U.S. equities and the remainder in non-U.S. equities or cash equivalents. The Capital Group Global Growth Equity ETF (CGGO ) is the largest allocation, at 25% of the model. This is balanced by 15% stakes in the Capital Group Growth ETF (CGGR ) and the Capital Group U.S. Small and Mid Cap ETF (CGMM ). Five other ETFs provide broader diversification.
A Model for a More Conservative Investor
Meanwhile, the Capital Group ETF Conservative Income Model has just a 14% direct allocation to equities. One such position is the Capital Group Dividend Value ETF (CGDV ). Meanwhile, 76% of the model is focused on fixed income ETFs. The Capital Group Core Bond ETF (CGCB ) and the Capital Group Short Duration Income ETF (CGSD ) are two of the largest of these fixed income positions. In addition, the model has a 10% allocation to the Capital Group Balanced ETF (CGBL ). CGBL holds a mix of growth and value stocks as well as fixed income exposure.
The remaining six models offer an array of asset allocation strategies such as moderate growth, growth and income, and conservative income and growth. We believe some advisors will want to outsource their portfolio decisions to a firm with Capital Group’s reputation. Some will want to benefit from the tax efficiency ETFs provide.
A Boost to the Business
However, we also believe these new ETF models will better help provide consultative support to the advisor community. Many advisors want to understand the risks they are taking on with their own models. With live models run by an experienced team, Capital Group can provide answers.
We contend these new model portfolios will help Capital Group further grow its ETF business. However, we think assets in CGBL, CGMM, and other ETFs will gradually increase. This is in contrast to what happens to ETFs held by BlackRock. As we recently noted, assets in recently allocated ETFs skyrocketed after being tactically added to BlackRock models at the end of February.
We can’t wait to see the Capital Group team at Exchange talking to advisors about these models.
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