First Look ETF: Why Active ETFs are Booming in 2025

You're watching the September episode of First Look ETF.

I'm Stephanie Stanton with ETF guide.

We are thrilled to have you with us.

A very warm welcome to all of our viewers.

Coming up on today's show, we'll examine a new active ETF from Toll & Company that scour the market for overlooked, misunderstood, and undervalued companies that offer upside potential.

Also, we'll tell you about a pair of active ETFs from Crossmart Global Investments that target US stocks with a complimentary approach of growth and value.

And finally, we have a look at a new ETF from Elm Wealth that's designed to navigate fast and everchanging financial markets.

Before we go any further though, we want to give a warm welcome to Mal Leum joining us from the New York Stock Exchange.

Mel, it's always great to see you. >> Great to see you as well.

I'm glad to be back. >> Let's uh begin as we always do with the latest update on ETF launch activity.

How are things looking?

I know I sound like a broker record, but here we are again, another breaking month for ETFs.

August was the strongest month this year so far with nearly 120 billion in net inflows, pushing us steadily towards another trillion dollar inflow year.

ETF launches are surging far, outpacing last year's pace.

We've already seen over 660 new ETFs come to market by the end of the summer, and we're closing in on 4,500 listed products in the US alone.

What's especially notable is the majority of these launches are active ETFs as issuers continue to capitalize on growing demand and opportunity.

The momentum looks set to carry us through a very active fall season. >> Well, you know, those are the kind of broken records we like to hear.

Um, you know, many people may not know this, Mel, but it has actually been more than three decades since the first US listed ETF debuted.

How do you compare today's ETF marketplace versus the one of the past? >> Wow, it's hard to believe that just 30 years ago, the first ETF, SPY, was listed on the American Stock Exchange.

Back then, ETFs were a novel concept, primarily used for broad market exposure and trading efficiency.

Today, they've evolved into a cornerstone of portfolio construction, offering access to virtually every asset class, strategy, and region imaginable.

We've gone from a handful of equity index products to a universe of thousands, including fixed income, commodities, thematic strategies, active management, and even alternative.

The growth in asset innovation and product design and expansion of use cases from institutional hedging to retail investing reflects a maturing ecosystem that's more dynamic, diverse, and democratized than ever before.

You know, it really is amazing and we have an amazing lineup of guests for this show.

What are you looking forward to on today's show? >> We've got a fantastic lineup today and I'm really looking forward to the conversations ahead.

Each of our guests bring deep experience from the asset management world now channeling their expertise into the ETF space.

I'm excited to hear from Elm Wealth, Tol and Cosmark just ahead. >> Good stuff.

And on that note, let's get to it.

ML, thank you so much for the update.

It's great to see you and we of course will see you soon. >> Nice to be here. >> You're very welcome.

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Whether you're riding the wave of tech disruption or anchoring your portfolio with dividendrich mainstays, there is merit to both styles of investing, growth and value.

Well, here to discuss a pair of actively managed ETFs targeting both strategies is Robert Dah, CFA, CEO, and CIO with Crossmark Global Investments.

And Bob, thank you so much for being with us.

It's good to have you. >> Good to be here.

So before we discuss your recently launched equity ETFs, what is Crossbark's unique investment philosophy and approach? >> We managed 30 different strategies uh until now across mutual funds and SMAS.

So these ETFs are a new asset vehicle for us and uh we are very disciplined and quantitative in much of what we do.

Uh which um has uh made these ETFs very exciting and fairly easy to launch as they're pattern after our SMAs.

Yeah, I can hear the excitement in your voice.

Okay, so let's break it down.

The Crossmark Large Cap Value ETF, your ticker there is CLCV and then the Crossmark Large Cap Growth ETF, that ticker CLCG.

These are among your first ETFs to market.

So, congrats on that.

Um, each of them has a different approach to investing in US large cap stocks.

Tell us about it. >> Yeah, so they are actually our first uh two ETFs.

Uh I would say over the last you know 18 24 months I can't get out of a meeting with FAS with when are you going to do ETFs.

So finally we've gotten there.

Um the value one is patterned to beat the Russell 1000 value index and obviously the growth one to beat the Russell 1000 growth index which is what we do in both our mutual funds and SMAs of the same name.

Uh we start in both cases with a quantitative model uh that ranks the stocks in the benchmark from most to least attractive among a wide variety of uh uh variables and uh the ones near the top are the ones we do fundamental research on and say yeah this is going to go in the portfolio.

Obviously a lot of portfolio construction Stephanie around that uh to make sure that um uh we're we're benchmark aware, benchmark conscious uh but trying to seek two to 300 basis points of alpha over those benchmarks perom >> and when we think of large caps um these are probably names that we're all familiar with. >> Yeah, the Russell 1000 as opposed to the S&P 500 does dip down into midcap.

I I call the S&P 500 mega and large cap. uh the Russell 1000, mega large and midcap.

So there are a number of midcap names in the portfolio uh as well, but the focus is primarily large and mega. >> So how do you see investors and advisers potentially using uh these ETFs inside a diversified investment portfolio? >> Yeah, frankly, no different than they might use a mutual fund or an SMA by the same name.

So when we walk into a financial advisor's office and say we do large cap value, large cap growth um and describe what it is they do, they oh do you have an ETF that does that?

Well, now we can answer the question.

Yes.

So depending on the client, depends on the time frame, depends on the advisor and their practice whether they use SMAS, mutual funds or ETFs, uh it is part of as large cap value and large cap growth part of the core of their portfolio. >> Sounds good.

Sounds like you've got a lot of flexibility as well.

All right.

Well, Bob Dah with Cross Mark, thank you so much for joining us today and sharing more about your ETFs and again a big congratulations. >> Thanks. >> Value stocks are notoriously difficult to identify because you are essentially betting that the market is wrong and that takes conviction, patience, and a sharp analytical edge.

Well, a new actively managed ETF from Toll and Company offers a unique approach to finding and investing in value stocks.

Here to elaborate is Brett Meyer, CFA, FRM, head of capital formation with Toll and Company.

Hi Brett, good to see you. >> Nice to see you as well.

Thanks for the opportunity. >> You're very welcome.

Before we discuss your recently launched ETF targeting undervalued or mispriced securities, can you familiarize our audience with your firm's investment approach and philosophy? >> Yeah, absolutely.

We'd be happy to.

So, our firm has actually been around since 1981, and during those four decades, we've stayed true to one discipline, um, buying businesses at deep discounts to what we think that they're worth over a full market cycle.

Now let's actually maybe talk about what that looks like in practice.

We start with a couple of hard numbers that we focus on in particular.

Um enterprise value to sales is a big part of what we do.

We look for very low enterprise value to sales.

And then what we look for is what we call maximum earnings yield.

Basically what can these businesses earn over the next 3 to 5 years if things fall into place.

But then the real work is is fundamental from there.

We have a team of four portfolio managers who dig into balance sheets, normalized earnings of these businesses, tangible assets, etc.

I'll give you a quick example that's a good illustration of the type of businesses that kind of come into a toll portfolio consistently.

Oil refiners.

They're highly cyclical businesses.

They're tied to crack spreads, which is basically what can you sell the barrel of oil for versus the gallon of gas.

Uh, and we're often able to buy these businesses when they're actually often losing money as a result of those crack spreads being really tight.

But then over time, as the economy really cranks up, they're often able to earn substantial earnings over time.

And so um, with patience and discipline and fortitude, those are the type of businesses that we can uh do really well with and and end up in our portfolio.

Um, so having that patience and conviction to hold through full cycles, that's really been the DNA of Toll for 40 plus years. >> Yeah, that's fantastic and thank you for that example.

That makes a lot of sense.

Uh, the Toll Value ETF and your ticker is TCV was launched on the New York Stock Exchange in July.

So, congratulations. >> Thank you.

Exciting. >> Yeah, indeed.

The fund screens for undervalued companies in US markets.

Um, it also employs an actively managed approach.

I know you mentioned some of that but um tell us a little more about the fund.

Dive into it if you will.

What does the fund own?

What makes it a compelling solution for equity investors? >> Yeah, absolutely.

So, we own a a constant reasonably concentrated portfolio of approximately 50 uh US small cap and a and a few midcap companies but primarily small caps where ultimately we believe the market is being become overly pessimistic about their future opportunities.

Um, what this tends to lead us to is in what I'll call real economy businesses, asset intensive businesses.

So, a lot of industrials, transportation, autos, I mentioned the oil refiners already.

Um, so quite frankly, the sector weights of our um of our ETF is quite different than a lot of the large cap growth and technologydriven uh ETFs and indexes that are out there.

So we're particularly compelling diversification opportunity I think for advisers to consider just given what the market has done over the past 15 years uh and how much um dislocation there's been between large cap and growth factors and small cap and value factors. >> So how do you see investors and advisors potentially using TCV inside a diversified investment portfolio? >> Yeah, good good question.

Um, I've been with a couple adviserss recently that as we really unpacked all of the ETFs and mutual funds that they had exposure to, uh, they started to realize that, you know, 30 or 40% of their, uh, exposure might have been tied up in just a handful of, you know, large cap, uh, technology businesses. uh and you know we that's where TCV can really play a role because we play in the small cap space of the market because we play in value uh and as a result of some of the sector weights that we have we are a really good diversification benefit um relative to what those um you know type of uh investments in the index and technology space that so many advisors have admittedly done very well with over time.

But we we believe that mean reversion is one of the most powerful forces uh in the in the investment landscape and that over time small cap and value factors will really be a good place to be and so giving at least a you know an allocation to something like TCV makes a lot of sense. >> That's fantastic.

What a great way to end our conversation.

Brett, thank you so much for stopping by.

It's great to have you. >> Thank you so much.

Market changes can be fast and furious, leaving some investors and their portfolios struggling to keep up.

How can you adapt to everchanging market conditions?

Well, a new fund called the Elm Market Navigator ETF aims to do the heavy lifting for investors.

And here to explain more about it is Victor Hagani, CIO and founder of Elm Wealth.

Hello, Victor. >> Hello.

Thank you.

Good to be here. >> Oh, it's great to have you.

So staying on top of fastmoving markets, you know, it can be a challenge for investors.

For example, external changes in the market or economy sometimes happen faster than an investor can react.

What are the challenges facing investors and what is Elm Wealth doing to help them address some of their concerns? >> So uh you know indeed market conditions are changing all the time.

Interest rates are going up and down.

Stocks are going up and down.

And I think that most investors feel that having a dynamic and responsive asset allocation makes sense.

The expected return and risk of the different asset classes is moving around and our portfolios should reflect what those opportunities look like.

Now for most investors, you know, it either takes too much time or it's hard to separate the signal from the noise and what's going on.

And also there's a tax efficiency. you know, people like to be buy and hold so they're not generating lots of capital gains over time as they rebalance their portfolio.

And so what we've created or brought to market, it's actually it's a conversion of a of a fund that we had uh for investors since 2011.

So it's it's got a long longish track record of almost uh 14 years now. uh and it is a dynamic asset allocation ETF that uses lowcost ETFs as its building blocks and it changes the asset allocation over time in line with changes in the expected return of different asset classes and their riskiness. >> The ELM market navigator ETF uh the ticker is Elm simple ticker there and I like the name because it kind of the name says it all.

Uh you guys are aiming for growth of capital by owning a portfolio of lowcost index ETFs.

Although the fund uses index ETFs, Elm is still actively managed.

What types of ETFs does Elm's portfolio own?

And how does Elm dynamically allocate across these various funds? >> So the uh the ETFs that we own are mostly from the big and trusted providers.

Vanguard is is the uh sponsor of most of the ETFs that we use, but we're also using uh ETFs to fill in some of the gaps in in other places from Eyesshares, JP Morgan, State Street, you know, etc.

And so the uh the average cost of the ETFs that we're using is about five basis points in our fund in our ETF.

And uh you know, when we started our business back in 2011, the cost of the ETFs we were using back then was probably like 12 basis points.

And so it's come down by more than half over these last 14 years and maybe we'll even drift a little bit lower there.

So we think fees are really important.

The uh the ETFs we use have low fees and we ourselves charge low fees as well.

The uh the total fee including the underlying ETFs of our fund is 24 basis points which is about the lowest of any of the independent asset allocation ETFs that are out there.

Now you also asked about you know exactly how do we do this uh you know what how do we actually do the management in our ETF and as I said we increase allocations when the expected return of a particular equity market goes up relative to safe asset returns and decrease when it goes down and also when the risk level of the market jumps we reduce allocations by about a third and when we're in a low-risk environment we increase allocations by about a third so the amount that we're allocated ated to equities, global equities over time is varying as expected return and risk are changing.

And what we feel is that this allows investors to keep a higher average exposure to equities.

You know that if you know that uh that you're going to do a buy and hold forever, you might be kind of conservative with how much equities you want to own.

But if you know that somebody is is watching and changing it is going to try to protect you from cases where uh you know stocks are trading at huge multiples and maybe we get into a very high-risk volatile environment you know that there's going to be some changes to the portfolio that will be protective in that environment and I think that gives investors more confidence to have a higher average allocation to equities over time which is what we're really hoping to uh to deliver to investors. >> Yeah. and and and a little peace of mind of course too.

Um yeah, >> how do you see investors and advisers potentially using Elm inside their diversified investment portfolio? >> Our DNA or our origins are as a wealth manager rather than an investment manager.

And so for many of our clients, they're using our product, our ETF, or we also do separately managed accounts, but they're using our ETF as the main building block of their portfolio.

Maybe it's the majority of their investments is just this investment in this global asset allocation ETF.

For advisers on the other hand, uh you know, I think a lot of advisers find the conversation about changing asset allocation for their clients to be a tricky one because they're normally saying, let's take some chips off the table.

This and this and this have done really well.

That's going to involve uh realizing some capital gains for them.

And it just could be a kind of difficult conversation about when do you reduce exposures, when do you buy when the market's gone down or risk levels have gone down.

And by having a fraction of client portfolios in our ETF, you're getting this taxefficient and automatic asset allocation tactical asset allocation tilt into your client portfolios that then you can have this conversation of well we've reduced your exposure through because this ETF that we have in your portfolio has reduced exposure to US equities.

How do you feel about that?

Would you like to increase it?

And then it's a much easier conversation.

And so we're talking to advisers who are finding it you know interesting to think about having 10 or 20% of client portfolios um you know in our in our ETF which is really um exciting.

I think that people are realizing that you know there's really no such thing as passive asset allocation that you know at the end of the day asset allocation is always an active decision based on the expected return and risk of different asset classes and um you know I think also investors uh by and large uh find what Jack Bogle said a long time ago that the best investment strategy is the one you're going to stick with is also a really important guidepost to uh to investing that doing something that's logical, transparent, diversified, lowcost, um, you know, is is really the way to go.

And we're excited, we're super excited about our ETF.

You know, it's it's amazing that there's something like, I don't know, $4 trillion of asset allocation mutual funds that people are invested in, target date funds, balance funds, you know, $4 trillion.

But the asset allocation ETF space is less than $10 billion.

So we think the asset allocation ETF space has a huge uh growth opportunity ahead of it.

Um it makes more sense to be in an ETF structure where you have the liquidity and you have the tax efficiency that you don't have in the mutual fund structure.

But target date and balance uh target date and balance funds came about in mutual fund space and I think that we're going to see a lot of um growth in the area and that's what we're really excited to be part of.

We're $450 million at the moment and growing and you know we're really excited about the uh the opportunity and the listing on the New York Stock Exchange is all very uh exciting and we're very optimistic about the future. >> It is exciting indeed.

Congratulations to you and yes, we have seen that just just this monumental growth of ETFs on the NYSE.

So, you are right on target with that.

Victor, thank you so much for joining us today on First Look ETF.

We appreciate it. >> Thank you, Stephanie.

Yeah, that was great.

Really appreciate it. >> And that does it for today's episode of First Look ETF.

If you enjoyed the show, please 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 Mal Leam at the New York Stock Exchange.

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

I'm Stephanie Stanton with ETF Guide.

Thank you so much for watching.

We'll see you next time.