First Look ETF: Unlocking Income and Value in the Stock Market

you're watching the January episode of First Look ETF I'm Stephanie Stanton with the ETF guide want to give you a warm welcome to 202 5 this is our first episode of a brand new season season five of First Look ETF and as always it is great to have you with us coming up on today's show we'll examine a pair of recently launched Equity ETFs with a value investing approach and we'll tell you about an Innovative private credit ETF with a unique income strategy but first to kick things off we have Matel leum with the New York Stock Exchange Matel happy New Year it is great to see you again great to see you as well Stephanie I'm excited to kick off 2025 absolutely so uh let's kick off the year with the latest update on the ETF launch activity how are we looking as we start 2025 we rounded out the year with a record working month in terms of launches here at the NYC the industry saw 100 new ETFs launch in the month of December alone in fact it was the highest number of launches in a single month in our history here at the NYSC so if we take a snapshot of 2024 that brings our total number of list ETFs to 3,927 with 742 listed this year alone you mentioned uh breaking records what other records can you tell us about and what other noteworthy Milestones jump out at you sure the industry has certainly experienced unprecedented growth and transformation over the past few decades but 2024 marks a year of monumental developments Innovations regulatory changes and new Milestones it's hard to believe that it was actually this year only that we saw the approval and listing of the first spot Bitcoin ETFs which quickly became some of the most successful launches in ETF history in terms of asset Gathering and trading it was also this year we saw the US ETF industry surpass the1 trillion Mark in asset under management as well as over $1.1 trillion in inflows through into ETFs shattering all previous records yeah it really has been an incredible year so as we look ahead to 2025 um what trends are you guys monitoring are we going to expect to see more crypto ETFs so as we look ahead to this year there's so much to be excited for we expect to continue to see the growth in the active ETF space with over two-thirds of the new ETFs being active there is a lot of opportunities for all types of issuers to bring new and Innovative approaches to the ETF rapper giving investors access to strategies that were previously not easily accessible we continue to see a focus on option-based derivatives and fixed income ETFs with almost 4,000 ETFs available in the US as a global leader in the ETF listings the NYC continues to focus on education and access to information so as I always say I want to remind you to go to ETF central.com and catch up on the latest ETF news and Trends and all that is happening here at the NYSC the home of ETF all right we will let you get back to work Mall thank you so much as always it is a pleasure to see you and we'll see you soon you as well and just a quick reminder to watch First Look ETF on Amazon Fire TV and Roku also we saw will cast First Look ETF on iTunes Spotify Amazon music and other major podcasting platforms so don't miss it for some investors finding undervalued investment opportunities in chaotic markets might seem like a daunting task but a pair of equity ETFs from GMO with a Hands-On approach and a disciplined framework promises to do the heavy lifting we'll here to tell us more about it is Katherine lra asset allocation strategist with GMO hi Katherine it is great to have you thank you so much so before we talk about a few of the uh of gmo's recent ETF editions what are some of the challenges that you see currently facing Equity investors the number one challenge facing Equity investors today is what to do about investing in the US after some spectacular performance the market is really expensive with the S&P 500 near Peak valuations add to that the fact that S&P 500 is also at Peak concent conentration with the top 10 stocks in the index making up the highest percent of market cap and volatility that we've ever seen as a result passive investors aren't getting a diversified basket they're bearing a lot of specific company risk these top stocks in the US have delivered extraordinary fundamental performance but growth of this magnitude rarely persists for many years and the companies have already benefited from multiple expansion finally within the US the dollar is also so rich relative to most currencies so today that classic tension between greed and fear is acute investors are worried about holding on to an equity Market that has experienced enormous multiple expansion but at the same time they're hesitant to step away for fear of missing out on a further rally a lot of good points there now the GMO us value ETF and that ticker is GMO and then the GMO International value ETF GMI those are recent additions to your firm ETF lineup tell us more about the value investing strategy behind each fund and then also with that what types of stocks might we expect to see them holding yes GMO has now four active ETFs GMO V and GMI for Value in addition to qlty us quality and qti International Quality value and quality are core areas of Excellence at GMO and permeate absolutely everything we do so we're so happy happy to have this capability available via ETF these ETFs also might provide a solution to that challenge Equity investors face of an extended US market because they're all viable attractive Equity alternatives to an expensive concentrated S&P 500 Index we're particularly thrilled about the value ETFs because value is extraordinarily cheap today trading at the one of the widest discounts ever relative to growth stocks value cheapness is fourth percentile compared to history and it's only ever been cheaper at the height of the tech bubble or for a brief moment amid 2020 pandemic Euphoria so it's a wonderful time for Value investing in terms of our approach it's differentiated in three ways first we look for topdown opportunities and today that leads us to deep value the cheapest 20% cohort deep value stocks are completely dislocated and based on history when value wins deep value always wins by more so we think this is the best way to Target today's extraordinary value opportunity second When selecting Securities we look Beyond reported accounting data GMO has restated the financials for all of the companies in our investment Universe to better reflect underlying fundamentals so as an example we consider research and development to be an investment rather than just an expense and third we also create Financial projections for every company tailored to that company's uni unique characteristics like their quality or growth prospects in terms of the types of stocks you should expect to see in these value ETFs stocks at attractive valuations that are still strong profitable companies based on the comparisons I've looked at GMO and GMI traded a discount to most other value approaches because we're going deeper into value at the same time the quality characteristics are robust with metrics like financial leverage and profitability looking better than most value indexes so then um how do you see GMO and GMI being deployed inside an overall Investment Portfolio well these ETFs can simply be used as substitutes for existing passive or active value exposure because we're going in deeper into value when value wins we expect to outperform traditional value second if you don't have any value exposure today you could use GMO and GMI to make an opportunistic vet on value value is extraordinarily cheap and it's priced to outperform growth by 60% in a reversion scenario so if you are ever going to consider value exposure for your portfolio now is the time finally you can simply use these ETFs as a way to diversify away from the expensive concentrated S&P 500 Index exposure all right well Katherine thank you so much for joining us we really appreciate your time today thanks for including me private credit is an area of the bond market that is sometimes overlooked and as a result fixed income investors might not be getting all of the diversification benefits that they seek we'll hear to discuss a recently launched ETF that targets the private credit clo Marketplace is James Jessup income strategist with verdis ETF Solutions hi James it's great to have you with us here on First Look ETF good to speak and thanks for having me all right so before we talk about the verdis uh syes AAA private credit clo ETF and that ticker is PCL familiarize our audience with Clos in the private debt Market what are Clos and what are the potential investment benefits that they offer sure so let's start with Clos CL collateralized loan obligations or Clos are securitized debt instruments backed by pooled below investment grade corporate debt so that's some mouthful so let's so un let's unpack that a little bit first off in terms of securitization is a process most investors are probably familiar with securitization is the process of taking a number of different loans or debt instruments and kind of putting them into one place this is the same process we're familiar with on the mortgage side you will also will see this on subprime auto and a number of other different debt instruments and once that kind of securitization takes place then they're broken out into what's called tranches starting with AAA and then on downwards Triple A Double A on down all the way into single B and what's the advantage to that is you get a lot of diversification quickly but also the investor or the allocator can be much more targeted in terms of the amount of risk that they want to take on or How brave that they want to be the type of income that they're looking to generate and have a better understanding of kind of what they're allocated to in these Diversified portfolios from a benefit standpoint Clos and particularly on the private side it's a point of access to a vastly growing marketplace where we have seen investor demand and it allows you to do it in a manner that is going to be broad Diversified within each when within each private credit clo you'll typically see between 80 and 100 different debt instruments or loans within those so in a single ticket you can end up with a lot of broad diversification and you can also be targeted in terms of where you want to go from a risk standpoint and what your demands are from an income standpoint okay so now that you've defined that um the verdice Cy AAA private credit clo ETF and again that ticker is p this is the first ETF of its kind essentially um give us a little bit more information about the fund's unique strategy and then dive into some of those Holdings you touched around it at the top in terms of this is the first of its kind and so when we were thinking about building this this product out this ETF out what we thought about was this is going to be for a lot of investors their first exposure into the private credit Marketplace so as a result of that we really focused on the AAA space which is the most conservative within the group also the least income available and the further down you go and any credit structure the more income that you'll generate but being in that AAA space we thought it offered an opportunity to do it in the most conservative manner possible give an investor something that's going to be short in terms of duration um and also hopefully generate some income somewhere between investment grade and also high yield from a holding standpoint as we sit here now we're already in 20 different clo deals and within each of those deals is going to be another 80 to 100 names now in terms of looking further into it and this is an important feature on the private credit space certainly part of pclo but the private credit Market in general they become opaque quickly you can't get a great look through in terms of what are these kind of individual positions that's the private nature of a private credit Marketplace uh and that's why we thought it was important to be in AAA and important to be in a number of different Holdings from different issuers and kind of be as broad as possible because part of the reason that you're seeing income where it is is the opaque nature of it you're kind of paying that premium you're capturing that premium for not being able to see through on the individual deals that's where some of that income will come from how do you see investors and advisers potentially using pclo inside an overall Investment Portfolio I'm going to go backwards on that question I'm going to start with what it's not uh this is not a money market alternative this is not a cash equivalent this is not your new sweep account this is a credit product uh and the reason I share that is with the income where it is and with a AAA rating we want investors to have a good understanding of what it is that they're taking on from a credit risk standpoint what they can expect from a volatility standpoint uh and kind of what it's what it's going to be now the age-old question of kind of where do I put it or why would I use it uh you don't have exposure to this place already uh that's one of the reasons broadly speaking most allocators don't have a dedicated portion in private credit already particularly in the retail space which is an important part of our client base and so this is going to be that first step into there and that also to go back to portfolio construction that's why we focused on the AAA space is we wanted to kind of give the most conservative allocation possible initially for someone who's coming into this space for the first time and getting the benefit of that of that income again that income sitting somewhere between investment grade and high yield but giving that new broad diversification in a single ticket and giving an opportunity to participate in a Marketplace that is growing quickly and also growing not just from an asset management standpoint but also from a mind share standpoint this is one of the leading topics in fixed income at this time uh and we're happy to kind of be participating in it and offering very early in the life cycle all right James Jessup thank you so much for sharing more about pclo today we appreciate your time thanks and have a great day and that does it for today's episode of First Look ETF if you you liked the show please tell us in the comment section below and by hitting the like button want to give a big thanks once again 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