ETF Battles: TOPT vs. CNEQ vs. BKCG – High Conviction Showdown!

Forget broad market exposure. How about we examine ETFs that are swinging for the fences? Sounds like a delightful exercise to me. Today's ETF matchup is an audience requested battle between three high conviction, highly concentrated plays where every holding is handpicked and every move is deliberate.

But conviction cuts both ways when you really think about it. Are you getting genius or are you getting group think? Well, today's ETF face off, we're going to dissect these managers that are trying to express their boldest ideas and we're going to see whether it's a smart bet or just a gimmick. Let's find out. This is ETF Battles. Stick around.

Good to see you again. I'm Ronda Leg. You're watching ETF Battles. Be sure to hit that subscribe button if it's your first time watching. And keep your excellent ETF matchup requests coming. Hit us up with your ETF ticker symbols in the comment section below. And then also be sure to watch our season 6 ETF battles playlist. It's also posted in that same area in the description section.

Check to make sure that whatever ETF matchup you want to see has not already been done. Also, be sure to check out the description section. We've got our program sponsor direction links to them and they've got lots of choices in terms of leveraged and inverse ETFs on broad market indexes. You've also got ETFs linked to industry sectors along with MAG 7 along with single stocks like Tesla, Palanteer, Nvidia, and many others. So be sure again to hit that description section below and visit direction.com.

Today's ETF contest was sent to us by a viewer named Demoy. And yes, that's a soft X as they do in France. And this looks to me like another super intriguing matchup this time between high conviction, highly concentrated equity portfolios, ETFs tracking those strategies from Alger, BNY Melon, and Black Rock. We've got adrenaline versus adrenaline versus adrenaline. Thank you, De Moy, for your ETF battle request. slicing it up and helping us to make sense of it.

We've got Shaina Siso with Banrian Capital and Tony Dong, an independent ETF analyst. Great to see both of you. Welcome back.

So, we got cost, exposure, strategy, performance, mystery. Those are our four categories. Mystery is where our judges can pick any factor or thing that they think is crucial to today's contest. And who knows, that may be the deciding factor for today's matchup. Also, our judges can nominate wildcard ETFs or they can opt for split decisions. I've got the scorekeeping chores. None of the outcomes or analysis that we do on this program are ever known in advance by myself or the judges, or are they ever predetermined. So, let's get right to it. Cost is the first category. Shaina, break it down for us. How do these ETFs compare?

So, this is pretty easy winner. CNEQ and BKCG are more actively managed and their expense ratio reflects that. TT is passively managed, and its expense ratio reflects that at 20 basis points. It's also very liquid and easy to trade, has the most assets of the three. And for that reason, TT is my winner.

Thank you, Shaina. top t is her choice when it comes to cost. Tony, how do you see it?

You know, there was a time where 50 to 55 basis points for an actively managed fund would be considered extremely competitive. That would be during the days of mutual funds, but in ETFs now, we're seeing active management on both the equity and the fixed income sides come down. And unfortunately, BKCG and CEQ are no longer as competitive. TPT in this case is just significantly cheaper, less than half, 20 bips versus 50 and 55. I am still not too keen on paying 20 bits for what amounts to 20 stocks.

I think that with brokerages like M1 Finance where you could just make a pie or like even with zero commission brokerages, you could just buy a lot of these constituents yourself following the top 20 of the S&P 500. So, you know, if I had to pick one, it would be TOPT, cheapest by far.

That takes us next to exposure strategy. Tony, you already kind of alluded to it. So, break it down for us. How do these three ETFs in their portfolios look?

Mega Cap US growth tilt, but achieved in different ways. Top is pretty simple. Top 20 stocks in the S&P 500 in between rebalances. You're going to get all the mag seven up there and a few odds and ends like JP Morgan Chase, Birkshshire Hathaway. It looks very similar to the NASDAQ 100 but for the financials and the inclusion of NIC NYSC listed stocks. Again I don't like it because it's just you can do this on your own. You know if they charge 10 pips for it maybe 20 is a little pushing it.

CQ is a black box in how they actually select their holdings. We know it's a concentrated portfolio. We know that is skewed towards mega cap tech stocks with a much higher average market capitalization and more significant tech concentration. But beyond that, the process of how Alger actually picks the holdings is unknown. Fortunately, on the website, you can see which sectors and individual equities contributed or detracted to return. So, I do appreciate that.

But one thing to note is that the active share of this fund is actually pretty low. It's at 48%. Generally, I would say anything below 50 to 60% would be closet indexing. And that the top holdings are going to be very similar to whatever benchmark they're going against. So, if we look at the top holdings for this alge fund, it's the usual suspects. It's the Mag 7, Nvidia, Microsoft, Amazon, it's not until you get some active holdings like Apploving, Taiwan Semiconductor Manufacturing, Nebios Group that you begin to see some differentiation.

So, you know, when I see something like this, I'm asking myself, is the alpha actually from security selection or did you just double triple down on beta, right? With the same holdings as everything else. As for BKCG, it's pretty much the same story. BNY, you know, elaborates a little bit on their criteria for selecting companies. They say, okay, it's those whose revenue is likely based on our fundamental research that grow faster than US economic growth. And they measure that by GDP for some reason. and that have the potential for growth in long-term earnings or cash flow per share. Basically, again, trust us, but we're going to tell you a little bit.

We're seeing again a concentrated portfolio, 25 to 35 companies. They claim that there's a low annual portfolio turnover. I can't really find the stats for that, but I'm sure Morning Star has it. But again, like the active share of this is not that great. If you look at the top holdings, it is the same stuff again. Nvidia, Amazon, Microsoft, Alphabet. The first out of benchmark holding I see is ASML, right?

So, if I had to put it down to what exposure I'm going to want, I'm going to go with TOPT again because at least I know what how they're picking this stuff. Yeah, they take the top 20 of the S&P 500 and go. That's a natural momentum tilt. However inefficient it is, you're getting that factor exposure. But for these two, it really is just trust me, bro. And I don't like black boxes. I think they go against everything ETFs are. I don't like semi-transparent ETFs. you might as well be semi-transparent if you're not going to tell us how you're managing it, you know. And again, I don't buy the whole argument that, oh, someone's going to frontr run us. Like, come on. This is like nobody's heard of this ETF yet. No one is front running you. So, that's my take on it. Top again for exposure.

Shaina, you're up next. Break it down for us. Thank you, Tony, for the analysis.

I agree with a lot of what Tony said. I the two funds here that are actively managed CNQ and BKCG offer absolutely no information about how they select their names. And then they output looks a lot like you know the top 20 30 names in the index with a heavy tilt towards tech. Look I've been in manager research for most of my career 20 years of the 25 that I've been in and in this business. And you can tell me stuff without telling me stuff.

Like when you sit down your investment committee and you screen some you have a screen and you have factors you screen for and it gives you a universe, right? You're going to select from that universe using certain expertise, but you can at least tell me what you're screening for and these don't. In fact, at least BKCG gave me something like some general idea. I actually wrote down they have like a list of things that they look for industry leadership a global prominence strength of management strength of financials and then growth expectations based on their proprietary model of how they calculate that for CNQ I watched every video on that website on the website for ALGA I read through the statement of additional information I read through the I know nothing about how this the manager selects stocks I know literally nothing other than we want to be invested in the names of the future.

Like how that's defined, what they look for, how they select, how they nothing. I got no idea how they pick their names. And for that reason, it's really hard to like take that leap to, as Tony said, pay 55 basis points for active management when you don't have any information about how the manager is generating alpha and and no ability to actually check if what they say matches the output, right? Because there's a lot of reasons why you want to know these things is because you're trying to set return expectations so you kind of understand how this might behave over a market cycle. In order to do that, you often times take the information they tell you and then say, "Okay, if I did like a plain vanilla version of this, would it move?" Maybe not get...