First Look ETF: Active ETF Strategies for Value and Global Equity Investors

hello everyone you're watching the February episode of First Look ETF I'm Stephanie Stanton with ETF guide want to give you a warm welcome uh also to all of our guests it is great to have you tuning in coming up on today's program we'll examine a pair of recently launched Global Equity ETFs that seek to follow the footsteps of investing giants like Benjamin Graham and Warren Buffett also coming up we're going to tell you about a suite of ETFs targeting different segments of the stock market and finally we will examine a new ETF that invests in US Stocks with a strict and disciplined value strategy but first before we go any further let's welcome mall leum with the New York Stock Exchange Mall it is always great to see you you as well I'm excited to be back yes so let's uh Jump Right In tell us about the latest uh activity and update on ETF launches so you know following a historical year for ETFs we might have expected that we would see somewhat of a Slowdown but there is no sign of that in terms of new launch activities we are off to an extremely strong start with 70 new launches in the month of January and we're inching really close to that 4,000 ETFs listed in the US most of the new funds coming to the market are actively managed with over 85% of new launches this year in that category with that expectation that Trend continues yeah you know uh it's no secret here financial markets have been off to a pretty good start for the new year um how are the ETF asset flows looking and then what are some other trends that you guys are watching no we're coming off a remarkable year with over $1 trillion flowing in ETFs and so far this year we've already seen more than a 100 billion in net positive inflows signaling that growth is continuing at a record Pace asset flows have been spread across a range of asset classes but you know we saw nearly a quarter of all flows go into the Vanguard S&P 500 ETF vo this year so far underscoring the ongoing demand for lowcost Equity exposure we're also continuing to see strong interest in defined outcome and risk return strategies you know especially following two straight years of strong gains in the market man you know uh We've also got a fantastic guest lineup on this show what are you looking forward to on today's show so you know I'm really excited to hear from some of our newest entrance to the ETF space established managers who are making their debut into this rapidly growing Market over the past few years ETFs have skyrocketed in popularity and now traditional asset managers are recognizing that shift with many taking the leap to launch their own ETFs today we're joined by successful managers who are bringing their expertise into the ETF rapper not only are are they offering their existing clients an ETF option but they're also opening their portfolio strategies to a wider audience making these innovative solutions accessible to all of us yes indeed they are and Mall thank you so much for joining us keep up the great work and on that note let's Dive Right into this fantastic show but first uh just a quick reminder you can check out first look ETF on Amazon Fire TV and Roku we also simoc cast on iTunes Spotify Amazon music and other major podcasting plat platforms so don't miss it navigating Global Equity markets can be a daunting task many investors and even financial advisors lack the time and expertise to co markets for stocks that may represent the best value will a new pair of ETFs from first Eagle Investment Management aims to do the heavy lifting for you and here to tell us more is Adrien Jones portfolio manager with first Eagle Investment Management Adrien it is a pleasure to have you today thank you great to be here the first Eagle Global Equity ETF that ticker is fee and the first Eagle overseas Equity ETF the ticker Fe OE are recent additions to your ETF lineup give us a quick snapshot of the unique investment strategy behind the funds thank you sure um so the first Eagle Global value ETF is based on our um first Eagle Global value fund which has a 45e track record applying value investing principles around the globe and the overseas which is just the non- US portion um is based on the overseas mutual fund which has about a 33-year track record uh both of them are both of the ETFs are modestly more concentrated than the funds um and they exclude some of the less liquid positions but as investors we are uh bottom up fundamentally driven we invest globally and we have an absolute return Focus so we are Benchmark agnostic our goal is to generate competitive returns competitive absolute returns with less volatility uh for example the the Global value fund on which the ETF is based has a over 45 beta 65 and an average downside capture of about 40% of the MSI world so it's quite different um what makes us different I think from our peers um and certainly from the indices are three things one the companies we look for two are patients and three gold um which we own uh the companies we look for resilient businesses and we seek to buy them at a time when the the market is doubting that resilience now compared to our our peers and and Global indices our Holdings generally have higher returns much lower leverage and somewhat less cality and we try to find management teams that have sort of proven track records of prudent Capital allocation and this tends to yield a portfolio that looks quite different from our peer group and from the indices so we have a very high tracking error to the msci world or the AI um the second thing is our patience our average holding period is 8 to 10 years so we have very low turnover um the market seems to be getting uh increasingly impatient as years go by and we like to take advantage of that impatience um we will add we will trim uh but we want to benefit from the compounding of the value of the business not just the closing the valuation discount that we receive when we buy it and then the last is gold in the mutual funds we actually own both bullion and mining companies uh as a hedge against sort of macro geopolitical shock risks as well as sort of the risk of fiscally IR responsibility and sort of the debasement of the US dollar long term in the ETFs we only own the mining companies U the ETFs are designed to reflect really our stock picking and to exclude the macro element of the Hedge with the bu that bullan provides um but still owning gold equities is not exactly common among our our peers so what type of stocks might we expect to see inside Fe and Fe OE so in both ETFs our largest sector allocation has been to consumer staples and most people sort of yawn when I say that word but um it's not out of some defensive mindset although we do have a defensive mindset it's actually because these were businesses that were hit hard by covid uh by supply chain disruptions and inflation costs and as a result this group of companies in these businesses saw massive margin compression compared to historical fluctuations and the Market's panicked so we added several percentage points to our fund exposure and uh in 2022 and both existing and new names um and uh several of those companies obviously have seen their margins and stock prices recover others have not yet they're still dealing with other company specific headwind so we still think there's a lot of value there um in global uh in the global ETF our largest positions are Oracle and meta um Oracle we've owned in other vehicles for a long time and patiently watched it develop its cloud services business which appears to be gaining getting sort of a very good adoption at this point and they are accelerating their buildout and the market still has I think been quite skeptical about the long-term Traction in that business which is why it still trades at a significant discount to of the big three Amazon Microsoft and Google as for meta uh we actually own that and started buying that the other strategies in 2022 um it has a great uh unique position in advertising Market that um ability to micr Target I obvious it's a well-known company uh generates predes free cash flow um and uh we think the diation continues to be pretty undem undemanding on a on a normalized free cash flow basis in the overseas ETF our largest position is Imperial oil which we think of is the largest best oil companies no one ever no one's ever heard of even though it's a a 3040 billion doll company um it's an oil sands business uh in Canada and it has a massive Reserve Base they are profitable below $30 a barrel oil uh because and it has very minimal Capital requirements so it's very heavy free cash flow um and this company has used that cash flow to buyback shares uh over 30% of the shares outstanding over the past 5 years and you could probably say about the same amount over the prior five years before that so it is a rinse repeat business uh it trades at roughly an 8% free cash flow yield with just sh% of a 3% of that is is paid out in dividends and the rest really much goes to BuyBacks so then how do you see financial advisors and investors using the first Eagle Global Equity ETF which is feeg and then also the first Eagle overseas Equity ETF which is Fe OE I think it really depends on the client um I think for those who are looking to sort of dip their toes into non us markets for the first time Global value is a very appropriate vehicle I think larger clients uh those or those who want a dedicated International sleeve or or higher uh sort of risk-seeking uh might opt for overseas um but either one is going to give you exposure to our sort of unique approach to Value investing uh abroad so thanks very much and we're going to leave it right there Adrien Jones thank you so much for joining us we appreciate your time thank you well some investors have steered clear of stocks because of Rich valuations rather than giving up others are actively searching for investment opportunities within the stock market that offer value well here to discuss a new ETF with a disciplined value approach is Billy Hanan he is a portfolio manager with Parnassus Investments Billy it is a pleasure to have you today thank you great to be here so before we talk about your firm's latest ETF launch can you familiarize our audience with parnasa Investments and its full philosophy and approach Paris Investments is a boutique investment management firm uh we were founded in 1984 and have about 100 employees based out of San Francisco I think what really sets us apart is that we fundamentally believe that doing well and doing good are not mutually exclusive but that they go hand inand so for 40 years we have built a reputation as a leader in sustainable investing uh proving that investing behind high quality companies with strong value values can generate attractive Financial returns for our shareholders our investment philosophy is quite straightforward it's tried and true we find great companies we invest with conviction behind them and we hold them for the long term we're really looking for companies that have durable competitive advantages strong financials and responsible management teams and just as importantly we do not invest in industries that pose long-term risks to our investors or to Society at large sustainable investing is not just a filter for us uh we believe that it's completely integrated into our investment approach and this helps us identify resilient Forward Thinking companies that are built to last uh we're also very patient with our investments so we invest in them for the long term we believe in utilizing the power of compounding to let our shareholders benefit from our exceptional research upfront so in summary at pacis we're not just investing in companies we're investing in a future that uh aligns with our values and supports our clients financial goals so the Parnassus value select ETF and your ticker there is prvs um recently joined your firm's ETF lineup prvs screens for undervalued stocks in the US market can you tell us how this strategy plays out the prasis value select ETF follows a large cap value strategy so as value investors we're looking for undervalued companies with strong financials and positive business prospects we believe this is the best way to generate Superior risk adjusted returns for our shareholders there's actually a wide range of value strategies in the marketplace at Parnassus we employ a relative value strategy and that means we seek stocks whose valuations are trading at a discount relative to to peers uh to to the company's own historical valuations but who are also generating or exhibiting uh Superior growth prospects so we're highly selective uh the ETF is concentrated it's a best ideas portfolio there's only 25 stocks in it uh the stocks represent our highest conviction ideas for undervalued stocks that we think can uh perform well going forward uh these are quality stocks as I mentioned they have uh increasing relevancy in terms of their products or Services they have durable competitive advantages the management teams are strong um and they have sustainable business practices so in practice if we're looking at an investment idea chances are the company is facing some type of challenge or setback um we believe that this could be an opportunity to determine uh for us to determine if the setback is temporary um and that the market has overreacted uh we believe that the market is efficient over the long term but can pres present opportunities uh when it overreacts in the short term so we're looking for the small minority of cases where um we can invest over a longer period of time and benefit from the rebound so for example uh one of our top positions is visor in the ETF probably no other company uh has done more to change the course of world history by bringing the pandemic to heal with its innovative covid vaccines um however the fortunes changed dramatically when those uh covid revenues rolled off and the stock fell over 50% where we got involved um as an investor we think the stock in rebound um given their drug development pipeline has really been beefed up by their acquisition of C genen their covid franchise is stable the valuation is less than nine times forward earnings and the dividend is well supported at 6 and a half% and that's just one example so in our portfolio you'll find other examples of companies such as Market leaders that are temporarily out of favor um established companies that are undergoing transformation or quality Compounders that are uh trading off price yeah thank and thank you for sharing that example with fiser um who was your target investor and how might prvs be used as part of an overall portfolio or investment strategy yeah the ETF is suitable for a wide range of investors uh those who appreciate active management um and also a disciplined value approach uh this could include financial advisers and raas who like active ETFs and would recommend them for their clients uh this could also include individual direct investors who understand uh the tax efficiencies of active ETFs over funds um I think what these groups have in common is that uh they both are looking for Equity uh allocations that focus on uh highquality undervalued companies with long-term upside uh in terms of how the ETF could be used I firmly believe that it could be um a foundational Equity allocation for us-based uh stock portfolios or as a complement to uh a broader index-based exposure because the etf's main features are high uh conviction concentration best ideas approach I think that means it's particularly well suited as a return enhancer for existing core Equity portfolios uh investors should be aware that because it has a smaller number of Holdings um the ETF May generate a higher risk reward profile in pursuit of outperformance and and if I could I would like to just add some color based on what we're seeing in the marketplace um because sustainability is fully integrated into our approach we've seen this product and our strategies in general resonate very well with the millennial generation um this is a group that's confronted with the risks and realities of climate change on a daily basis uh they're paying close attention to major climate events such as extreme heat um unprecedented flooding devastating wildfires they're also looking at uh emerging issues such as responsible AI chemical safety and products um water scarcity for example so what we see today is that informed investors are really looking to asset managers like us who are paying attention to these issues and engaging with companies that are proactively uh taking steps to address them so ultimately pacus is uh a company that offers an approach um that allows investers to both generate uh Financial returns and invest according to their values it is an everchanging World Billy Juan with Parnassus thank you so much for joining us today here on firstlook ETF we appreciate your time my pleasure thank you navigating the fast growing ETF Marketplace can be a daunting task but Frontier Asset Management aims to minimize the complexity with its active ETF Solutions and we are very pleased to have Frank Pape director of strategies with Frontier Asset Management joining us here on firstlook ETF and Frank it is great to see you thanks Stephanie great to be here okay so before we discuss your firm's ETF lineup can you familiarize our audience with with Frontier Asset Management yeah thanks Stephanie so what's kind of unique about Frontier is we're headquartered and shared in Wyoming uh not many Asset Management firms in Wyoming but we've been there for over 25 years now uh we also have an office in Atlanta and Denver as well uh today we managed just north of five billion assets under advisement as of December 31st ending last year uh the bulk of those assets are in multi-asset portfolios and what do I mean by that uh we have a series of strategies for advisers to use or 3 investors they range from our core strategies our tax manage strategies for those who care about after tax return income oriented we have some faith-based uh series and lastly for this conversation we have a series of ETF multi-asset portfolios uh these ETF strategies started over 10 years ago so there's a track record there for advisers and investors to evaluate at launch uh we used thirdparty ETFs in these ETF strategies as the ETF Market has evolved we're very excited to this December this last December uh we launched some new ETFs that are now the building blocks of our ETF strategies so we launched six new ETFs and each of these ETFs are actually fund of funds or specifically fund of other ETFs so we're very excited to bring these these fund of ETF to the market for our strategies and for advisers investors who want to build their own portfolios yeah so congrats on that uh today we're going to focus on your three Equity ETFs so let me go over the tickers f lce fgsm and F NT each fund targets a different segment of the stock market uh tell us more exactly so as I said we're trying to build multi-asset fully Diversified portfolios so we need ETFs to round out those different asset classes so again uh we have six ETFs active ETFs that we launched we have three Equity ETFs two active fixed income ETFs and one active absolute return ETF again these are our our fund of ETFs as I said and cool about them for these these member ETFs that we use they can be active they can be F passive they can be factor-based we're in different where we get the return we're trying to get the best combination of ETFs in these asset exposures that are going to benefit investors in in the best way and you know again we use these in our multi-asset portfolios but definitely open the discussion for advisers who want to use them in their own portfolios as well to give you the listeners and idea how we're using them in our balanced ETF strategy we're allocating about 22% to a large cap ETF about uh 12% each to the to the global small cap and the global international uh ETF uh uh active ETF that we launched so uh do you want to dive in a little bit more to these three in particular the equity ETFs you have FLC uh fgsm and ft yeah thanks Stephanie exactly so so for the the the the large cap the frontier asset U us large cap exposure it is Benchmark the S&P 500 and it's a core exposure for investors looking for exposure to to the large C part of the market and our goal is to outperform the S&P 500 with that ETF uh the next one is the frontier asset Global small cap ETF just like it sounds we're giving small cap exposure both for the US and non- US exposure somewhat unique to be able to in one ETF get exposure small cap for us and non- US ETFs a third of the equity ETFs is that Frontier asset International Equity ETF and just as it says International it's both developed xus and immersing market today at launch it's about 75% of developed xus and about 25% uh Emerging Market in that exposure again all these are actively managed and we're excited to to bring these to Market yeah I mean definitely something for everyone what type of investor does Frontiers Equity ETFs those three in particular who do those appeal to most yeah you know get really to the theme of this whole uh webcast that we're doing is there's just so much ETFs coming to Marketplace it's so challenging for advisers investors due to adequate due diligence and we believe by partnering with Frontier Asset Management uh we can really help investors leverage their time uh again we've been optimizing and putting in funds and ETFs together for over 25 years and we believe can really help investors to focus on other things that that bring more value and partner with Frontier to get these core exposure their portfolios and again and and help their clients hit their long-term financial goals all right sounds good to us Frank P thank you so much we appreciate you uh good luck with your ETFs great thanks Stephanie and that does it for today's episode of First Look ETF if you enjoyed the show tell us in the comment section below and by hitting the like button want to give a big thanks to all of our guests along with mall leum at the New York Stock Exchange be sure to check out etfc central.com to learn more I'm Stephanie Stanton with ETF guide thanks so much for watching we'll see you next time