By Mark DeCambre
Hi there! Everyone wants a piece of the action. ETFs aren’t a shiny new object for Wall Street as they have has been around for years, but that hasn’t stopped what feels like a steady drumbeat of fund providers from either converting existing assets into exchange-traded funds or launching their own ETFs.
That is the case with Capital Group, a $2.5 trillion fund manager, which is kicking off a half-dozen actively managed funds with an ETF tax-efficient wrapper. We’ll take stock of the strategy.
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The Capital of ETFs?
Capital Group said it plans to launch a batch of ETFs by the end of the first quarter of 2022, and the initiative is setting up to be a prelude to a deeper entree into the fund type by the Los Angeles-based company, known for its American Funds series of mutual funds.
ETF Wrap asked Todd Rosenbluth, head of ETF and mutual fund research at CFRA, to put Capital Group’s ambitions into perspective for us.
“They have $2.5 trillion in assets and are showing up late to the ETF party with money to spend to have success,” he said.
“Demand for actively managed ETFs has never been stronger and they have the strong relationships, a record of success with stock picking and scale to make waves even in a crowded and concentrated market,” he explained.
As Barron’s wrote on Tuesday , the trend of actively managed ETFs includes offerings from the likes of Fidelity, JPMorgan Chase, and T. Rowe Price, but the active segment still represents a mere slice of the nearly $7 trillion ETF business.
Citing Morningstar data, Barron’s wrote that among the 325 stock ETFs launched this year and last, more than half are actively managed.
Why the shift? We’ve mentioned before, ETFs offer a cheaper alternative to mutual funds and providers see it as an opportunity to feed what has been perceived as growing demand for such products that offer investors the ability to buy baskets of assets and track their values daily in a transparent and tax-efficient wrapper.
Rosenbluth wrote that Capital Group’s first six products — five equity-pegged funds and one for bonds — will likely be the beginning of the company’s ETF franchise.
“We expect Capital Group will expand its lineup over the next few years toprovide an ETF alternative for clients across dozens of strategies,” he wrote.
The good and the bad
|Top 5 gainers of the past week||%Return|
|SPDR S&P Oil & Gas Exploration & Production ETF /zigman2/quotes/203527521/composite XOP||10.6|
|VanEck Vectors Oil Services ETF /zigman2/quotes/207596637/composite OIH||9.6|
|Invesco China Technology ETF /zigman2/quotes/203596391/composite CQQQ||9.6|
|VanEck Vectors Rare Earth/Strategic Metals ETF /zigman2/quotes/205602686/composite REMX||8.9|
|SPDR S&P Biotech ETF /zigman2/quotes/205950134/composite XBI||8.8|
|Source: FactSet, through Wednesday, Aug. 25, excluding ETNs and leveraged products . Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater|
|Top 5 decliners of the past week||%Return|
|iShares 20+ Year Treasury Bond ETF /zigman2/quotes/206026314/composite TLT||-1.6|
|SPDR Portfolio Long Term Treasury ETF /zigman2/quotes/209443811/composite SPTL||-1.5|
|iShares 10-20 Year Treasury Bond ETF /zigman2/quotes/207703790/composite TLH||-1.3|
|Invesco Taxable Municipal Bond ETF /zigman2/quotes/210123207/composite BAB||-1.1|
|Consumer Staples Select Sector SPDR Fund /zigman2/quotes/200697959/composite XLP||-1.1|
TLC for TLT?
The iShares 20+ Year Treasury Bond ETF /zigman2/quotes/206026314/composite TLT -0.25% was one of the worst performers this week among funds that ETF Wrap tracks (see attached chart) and there are some analysts who see the long-term bond ETF as suggesting that yields are heading higher in the near term as Jackson Hole looms and Federal Reserve Chairman Jerome Powell is expected to set the table for tapering of the central bank’s monthly purchases of $120 billion in Treasurys and mortgage-backed securities.
Mark Newton, market technician at Newton Advisors, says that although yields have been climbing, as reflected in the benchmark 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00% at around 1.37% Thursday morning, he’s not entirely sold on the prospect of a renewed push up for yields.