First Look ETF: Active Strategies for Resilient Growth, Catastrophe Hedging, and Income Security

Hello everyone.

Thank you for joining us.

You are watching the July episode of First Look ETF.

I'm Stephanie Stanton with ETF guide.

Want to give a warm welcome to all of you for joining us.

We are so glad to see you again.

Coming up on today's program, Catastrophe Bonds.

They offer high yields, low correlation to traditional markets, and a front row seat to the world's most unpredictable events.

We are going to tell you about a new ETF that is investing in this area.

Also coming up, growth stocks have had a volatile but resilient year.

We are going to tell you about a new ETF targeting top growth companies with a quality tilt.

And finally, we will examine an equity ETF that focuses on business that pumps out generous cash flow with recurring revenue.

But first, before we go any further, we want to give a warm welcome to Mal Leum with the New York Stock Exchange.

Mal, it is always great to see you. >> Great to see you, Stephanie. >> Let's begin, as we do, with the latest update on your ETF launch activity.

What are things looking like?

Now, we're halfway through 2025, and as expected, we're on track for yet another record-breaking year in the ETF space.

You might remember I mentioned that May was a bit of a lull in terms of new launches, but June more than made up for it with over 110 new ETFs hitting the market.

That's double the number from the previous month.

To put it into perspective, we're now tracking more than 65% increase in new ETF launches compared to this time last year.

And let's not forget, 2024 was already a record setting year.

Flows are also picking up with over a hundred billion added in June alone.

That brings the total US ETF assets to more than 11.5 trillion dollars.

The second half of the year is shaping up to be just as exciting. >> Yeah, I mean it really is impressive.

You know, obviously you mentioned that we did cross the halfway point of 2025.

What are some of the biggest ETF trends up until this point that you guys have been seeing?

You know, markets are once again hovering near all-time highs, and momentum within the ETF space continues to build.

While it's no surprise that traditional passive ETFs are still attracting strong inflows, the real story this year is the continued rise of active management.

We're seeing record-breaking issuance and inflows into active ETFs, which now account for nearly 40% of all ETF inflows.

In fact, the majority of new launches this year have been actively managed.

Precious metals and digital currencies have also enjoyed strong tailwinds driven by both market performance and investor demand.

Here at the NYC, we're seeing growth from every angle.

Mutual fund conversions, new entrance to the market, and established asset managers expanding their ETF lineup.

It's a dynamic time for the industry, and the momentum shows no signs of slowing down. >> So much going on over there.

Um, you know, we have a great guest lineup on today's show, as we often do.

Uh, break it down for us a little bit and, uh, what are some of the things that you're looking forward to?

You know, we're thrilled to welcome a new wave of ETF issuers to the NYC.

Each bringing deep industry expertise and a fresh, innovative innovation to the market.

Rainwater's actively managed portfolio offers investors a discipline long-term approach to capital appreciation, especially valuable in today's uncertain market environment.

Next, Hedgi also makes its ETF debut, packaging its renowned institutional research and market insights into a powerful new investment vehicle.

And with hurricane season upon us, it's especially time timely to hear from Brookmont, the team behind the first ever Catastrophe Bond ETF launched earlier this year.

It's shaping up to be an exciting show and you definitely don't want to miss it. >> Lots to look forward to.

We'll leave it right there.

Mel Leam joining us from the New York Stock Exchange.

Always a pleasure to see you. >> Thanks you as well. >> And want to give everyone a quick reminder to watch First Look ETF on Amazon Fire TV and Roku.

We also simoc cast First Look ETF on iTunes, Spotify, Amazon Music, and other major podcasting platforms.

So, be sure to check us out.

Catastrophe bonds derive their value from randomly occurring natural disaster events rather than from economic conditions.

And up until now, investors haven't had many ETF choices targeting this area.

Well, here to elaborate about this is Ethan Powell, the principal and chief investment officer with Brookmont Capital Management.

Ethan, thank you for being with us. >> Stephanie, thank you for having me. >> So, the Brookmont catastrophic bond ETF and that ticker is ILS.

It was recently launched.

And before we discuss the fund strategy, let's talk about the market segment that ILS targets.

Catastrophe bonds.

Um, a lot of people may not know what these are or even heard of them.

So familiarize us with the bonds and then why you think it's an area that investors should look at. >> Now we'll start with the name of the asset class.

Catastrophe bonds is a misnomer because it's anything other than a catastrophe for your portfolio from a diversification perspective and an income standpoint.

Um but as you mentioned these bonds are so fascinating because they're not tied to any sort of corporate credit event.

They're completely cash collateralized and the defaults are triggered not from a company being able to pay back principal plus acured interest rather the existence or non-existence of a series of catastrophic events in a specific geography relative to a specific peril.

Right?

So what you're getting is totally uncorrelated asset class um with you know a very very high sharp ratio.

You have a floating rate yield.

So you have very little duration or interest rate risk and you end up with a high singledigit or low double-digit yield um and a fantastic total return and a very stable asset class. >> Your ETF, the ticker is ILS.

It is the Brookmont catastrophic bond ETF.

Um tell us a little bit more about this fund.

Um what what does it own and then how does it work? >> So we own 144A fully cash collateralized bonds.

The insurance industry does have more esoteric industry loss warrants, sidecar vehicles, quota shares, but this is very standard SEC registered security exposure.

Um, and why that's important is you're not taking on balance sheet risk from these insurers.

So, you know, people are worried about in the event of huge catastrophes, the insur goes under and and I don't get my money back.

Um, in this case, uh, the your cash is actually sitting in a collateral account and the premiums from the insur are going to pay your coupon payment and you get your principal plus acred interest unless not just one catastrophe happens, but um, you reach what's called a trigger point, which is often hundreds of millions, if not billions of dollars worth of damage before your bond starts to get impaired.

And what's so interesting about our strategy is we use a professionally managed subadvisor.

It's the old uh PIMCO ILS team that lifted out and started a company called Kingidge Capital.

Um and we really focus on diversification.

Right?

So if you think about a traditional corporate bond issuance where Proctor and Gamble and Unilver may be highly correlated in our market, you may have Florida hurricane bonds and California uh fire bonds and then Chilean earthquake bonds, right?

So if an event happens in one part of the country for a specific peril, it has nothing to do with the rest of the portfolio.

So your potential impairment um isn't going to have this contagion type effect.

Um and what we've seen in prior draw downs is if a massive e macroeconomic event like trade wars um you know occur, all of these assets that historically are giving you diversification become highly correlated right at the moment that you need that diversification the most.

And that just doesn't happen with our asset class for the reasons I already explained.

So for the layman, um, you know, are you tying these bonds to specific, you know, climate change events?

You know, we've had fires, floods, hurricanes, like just for the layman. >> Sure.

Let's let's take a quick example.

Um, you know, this isn't a directional bet on specific weather necessarily, right?

Um, if All State does a really good job of underwriting property and casualty in Houston, Texas, for example, they may issue a Houston property and casualty hurricane bond, right?

Um, and we would invest in that bond.

The cash would sit there and we would get, you know, low uh double-digit yields and we would get our principal back in the event that a trigger event did not occur, right?

And that trigger event is typically all states specifically losing more than call it 500 million dollars of insured losses in name storms in the Houston area.

Right?

So it's geography and peril dependent.

And as I said, you know, we look to sort of hyperdiversify the portfolio across both so you're not taking undue risk in Florida hurricanes for example, right?

Um and as you know unfortunately instances of these events continue to increase insured damages continue to increase.

Uh you have insurers and reinsurers leaving markets um either entire geographies or writing out specific perils making uh society in specific geographies like Florida less resilient um and creating what's called an insurance gap.

And this is sort of the tie between insurers and capital markets that we think will continue to uh play a very pivotal role in society at large and we think it plays an extremely uh important role within a well- diver diversified portfolio as well and we're happy to bring the first access product in an ETF to the asset class. >> Yeah, it is a fascinating concept.

Quickly before we let you go, how might advisers and investors deploy ILS inside a diversified portfolio? >> It's alternative credit.

So at first and foremost, diversification.

Um secondly, you can replace your equity allocation with catastrophic bonds, not give up much on return and and bring the portfolio volatility way down.

Similarly, you can take a traditional Bloomberg a uh exposure, replace some of it with uh the ETF ILS and really increase your yield and total return while not increasing volatility or risk at all. >> Ethan, thank you so much for educating us about catastrophic bonds.

We appreciate your time here on First Look ETF. >> Thank you, Stephanie.

Growth stocks have had a volatile but resilient year despite elevated interest rates and other uncertainties.

Growth stocks are being driven by strong fundamentals along with innovation like artificial intelligence and blockchain technology.

Well, a new ETF targeting growth stocks was recently launched by Hedgei Asset Management.

And here to tell us more about it is Sam Ramen, portfolio manager at Hedgei.

Sam, thank you so much for being with us. >> Thank you for having me.

Okay, before we talk about your firm's latest ETF additions, can you familiar familiarize our audience with Hedgei Asset Management and your firm's investment philosophy? >> Absolutely.

HedgeI Asset Management is an affiliate of Hedgei Risk Management and Hedgei Risk Management has been around for over 18 years now and it provides institutional quality hedge fund research to all investors.

And so hedge asset managements bring that same philosophy to the ETF industry which is institutional quality portfolio management investment expertise to the ETF business. >> So the hedge quality growth ETF and your ticker is HGRO or HGRO.

It is among your firm's latest ETF edition.

So congratulations on that. >> Thank you. >> Um what types of stocks does the fund target? >> So it's a very concentrated portfolio. we only have like 40 or 50 stocks and if you compare that with our large cap peers who have 70 to 100 stocks or the universal large cap stocks are over a thousand stocks that's a pretty concentrated portfolio.

So with that, the three sort of buckets of stocks that we target are deep moat compounders or companies that have deep moes that are compounding the free cash flow growth above GDP growth and are able to reinvest that cash flow back into the business to make those modes stronger.

The second category are companies that are driving innovation and disruption.

And those are companies that are, you know, at the leading edge of S-curves or big investment cycles.

And typically people view those companies as maybe speculative or smaller cap.

But in our case, we think we can find great growth ideas in large companies that are the forefront of innovation and disruption.

And then the third category are special situations or business model transformations.

And these are companies that are undergoing their own internal change to help accelerate their growth rate or their returns above a level that they had broke before. >> So then Sam on that note, how do you see financial advisors and investors potentially using HGO inside a diversified portfolio?

Well, if you're looking for active management, focus on large cap quality companies.

Focus on those three areas.

Compounding companies, companies that have curves that are investing in innovation and disruption and special situations in a concentrated format, a best ide is is a great option to look at.

At the same time, the index has outperformed most managers over the last 10 years.

I think over the next five years, active management is going to do very well because of big changes like AI that's going to change how the leadership of those large cap tech companies are going to do in the future.

So, it's going to really be important how active you actively manage your portfolio versus just owning the index. >> Makes a lot of sense.

We'll leave it right there.

Sam Ramen, thank you so much for joining us here on First Look ETF and telling us more about Hgrow. >> Thank you. >> Imagine starting every month with revenue already on the books.

Well, that is the power of recurring revenue.

It is predictable, scalable, and resilient.

Well, that is also the focus of the Rainwater Equity ETF.

And here to explain is Joseph Chaposnik, portfolio manager of the Rainwater Equity ETF.

Joseph, it is a pleasure to have you today. >> Great to be with you, Stephanie. >> So, before we discuss your latest ETF offering, tell us more about your firm's unique investment philosophy and approach. >> You know, I founded Rainwater Equity uh after serving as portfolio manager at TCW for many years and prior to that at Fidelity and I really founded the firm because I felt the mutual fund industry particularly on the equity side is just broken. 93% of funds uh underperform their benchmarks on most measurable periods, one year, three year, fiveyear periods of time.

The industry is just doesn't work.

And I believe the reason the industry is broken is because portfolio managers take a flawed approach to to investing.

And that flawed approach is looking at uh every individual business in an index and trying to come to a conclusion as to the future prospects of that particular business by deploying dozens or hundreds of MBAs who are really smart to assess each business and then provide the portfolio manager uh with a recommendation as to how they should invest relative to those benchmark weights.

That approach doesn't work.

And the reason it doesn't work is I believe most companies can't be predicted.

And if you can't predict where a business will be in a year or two, then you certainly can't predict where it's going to be in 3 or 4 years.

And that makes it very very difficult to value and difficult to make an appropriate appraisal on.

Even the smartest MBAs and portfolio managers can't predict every single individual business in an index.

And that's that's the central flaw of the investment management industry today.

We take a different approach.

Our approach is we're only going to focus on those businesses that we think are predictable.

And those businesses that we think are predictable are recurring revenue businesses.

A recurring revenue business is a business that uh has its revenues tied to long-term contracts, has its revenues tied to a semi-oligopoly or monopoly market position, um or has its revenue tied uh to repeat a repeat purchase of a product that is rapidly consumed. >> The Rainwater Equity ETF and your ticker is RW.

It is among your latest ETF launches.

First of all, congratulations there.

What types of stocks does the fund own and what are the types of companies that we might expect to see within the fund's portfolio? >> Well, we only own recurring revenue businesses and so that means that their revenues are tied to long-term maintenance contracts like software companies that have two or threeyear uh maintenance contracts.

That means uh credit bureaus which you know command a high market share and have a significant amount of business that's very recurring.

Uh that that means uh aftermarket aerospace parts which need to be replaced as planes fly on a very regular basis.

Uh they tend to be the only suppliers of those parts.

Those are the types of businesses that we own in the portfolio.

And of course we focus on a three three-point strategy.

One only own recurring revenue businesses. two, invest with great leaders, and three, hold stocks for the long run.

We believe that the the secret to generating great returns uh is to is to hold great businesses for long periods of time and allow them to compound uh for for a long period. >> So, how do you see the Rainwater Equity ETF potentially being used by financial adviserss and investors?

In my view, RW is a great replacement for an existing allocation to one of the broad market indexes which today are highly concentrated, more concentrated than they've ever been in the history of the market.

So, RW uh will provide an investment advisor uh with a portfolio that has greater stability because of its focus on recurring revenue businesses. uh the opportunity for higher rates of growth and compounding because these businesses can redeploy their excess free cash flow to activities that will create more free cash flow and more growth.

Um and um this provides in the event that the in the event that the adviser would like to pair this with an index fund, this provides them with significant diversification relative to their index position because we don't own the large index names.

We own a collection of recurring revenue businesses that are small caps, midcaps, large caps, both domestic and and foreign.

So, it's a great diversifier to an existing indexoriented portfolio.

And of course, it's run by a manager that has a long record of doing this u at at a prior firm.

So, a track record that one can take a look at and evaluate. >> And we are going to leave it there.

Joseph, thank you so much for your time today and sharing more about your ETF.

We appreciate it. >> My pleasure. >> And that does it for today's edition of First Look ETF.

If you enjoyed the show, please tell us in the comments section below or by hitting the like button.

Want to give a big thanks to all of our guests today, including Mal Leum at the New York Stock Exchange.

Be sure to check out ETF central.com to learn more.

That's going to do it for me today.

I'm Stephanie Stanton with ETF guide.

Thank you so much for watching.

We will see you next time.