Commenting on US asset manager Capital Group’s entry into the ETF market, Todd Rosenbluth, Head of ETF & Mutual Fund Research, CFRA writes that this will be a key milestone for active ETFs given that the firm managed USD2.6 trillion in assets overall at the end of 2021 and is one of the largest global asset managers.
Rosenbluth says that active ETFs gathered 10 per cent of 2021 record inflows according to CFRA data, despite managing just 4 per cent of ETF assets.
“There remains tremendous room for growth for such funds as investors gain comfort with the more tax efficient approach to active management,” Rosenbluth writes. “While other traditional mutual fund providers, such as American Century and Fidelity, have introduced active ETFs recently, these firms previously offered index-based ETFs. Capital Group is sticking to their expertise as an active manager with its first suite of products. We expect more offerings in the next two years.”
According to Rosenbluth, the Capital Group ETFs will disclose full holdings daily, which is significant given the amount of assets the firm manages. “Unlike some of its peers’ active equity ETFs, Capital Group’s offerings will be fully transparent and have the flexibility to invest outside of the US, which should help the ETFs differentiate from benchmark-based funds. The daily transparency should also improve the ETF liquidity.”
Rosenbluth writes that the addition of global/international equity ETFs and not just US focused products will help support advisers/investors with asset allocation objectives.
“However, unlike popular and transparent ARK ETFs, these new Capital Group ETFs will be more diversified across sectors and themes and be better positioned to serve as a strong core of the portfolio with management’s a long-term time horizon,” Rosenbluth says.
“The ETFs will leverage managers that support popular and strong performing American Funds mutual funds. Capital Group has strong relationships within the wealth management community and the resources to support investor education about their line-up.
“However, these ETFs are likely to provide differentiated exposure and limit the likelihood of cannibalisation. We think Capital Group can be a top-tier ETF provider in the next few years.”