ETFs for Growth and Income Investors

And when we talk about this with investors, they they honestly they have the blinders on and they don't acknowledge or understand what's going on in the marketplace. >> Hello everyone, welcome to the program.

I'm Stephanie Stanton.

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Well, growth investing once upon a time meant finding companies with real earnings and durable margins.

But in today's market, growth investing has been reduced to profitless companies with speculative hype.

At the same time, income investors are navigating a rate environment that is punishing duration and rewarding credit discipline if you know where to look.

And that is where Advisors Asset Management steps in.

Their ETF lineup spans everything from low duration preferred to quality growth strategies, each subadvised by specialists with deep domain expertise.

Well, here to tell us more about this is Lance McGra, managing director and head of ETF product at Advisor Asset Management.

Lance, it is so great to see you again. >> Uh Stephanie, it's always great joining you.

So, let's begin with the AAM Todd International Intrinsic Value ETF and your ticker there is TIV.

Um, it was recently added to AAM's ETF lineup.

So, congratulations on that.

Um, the fund emphasizes bottomup fundamental analysis with multifactor ranking across international stocks.

Why should investors be looking abroad and more specifically, what makes Todd's intrinsic value approach so unique?

Thank you.

And um you know we we are awfully excited to have this ETF on our platform.

As you mentioned, it has been a a busy year for AAM ETFs.

We've had a number of launches.

Um this is just another example of how AAM continues to strive to offer the best possible solutions we can to our investors.

Whether it's rulesbased or active, whether it's uh equity, whether it's fixed income, whether it's domestic or it's international.

And this is this this is a product that we've um we've been working on for quite some time.

Um and before I dive into who Todd is and what their intrinsic value strategy is because obviously that's very important to the strategy, I think we need to sort of first talk about um why investors need international equity exposure right now.

And I I will admit going back for the last few decades, if there was any way to put somebody to sleep when you're talking about investments, it's probably talking about international equity investing.

Um the fact of the matter is, you know, given the strong bull market that the US equity market has experienced over the last few years, um international equities have lagged.

Um the good news is times are changing.

Um, and while US growth stocks and the major broad-based indices that are really growth oriented have been performing exceptionally well, um, it's not the only place that's seeing success.

In fact, if you look at the Aquex XUS index on a year-to-ate basis going through October 31st, it's up nearly 29% and that's compared to the S&P 500 which is up 17.5%.

So again very attractive returns.

Um not only is it really strong on the uh returns front that is the international equity space XUS it's doing so with less volatility and lower draw downs.

Um and when we talk about this with investors they they honestly they have the blinders on and they don't acknowledge or understand what's going on in the marketplace.

Um and and when you mention facts like you know uh other major broad-based equity indices like in Japan, Germany, UK, France, Italy, Brazil, um all of their major broad-based indices are at all-time highs and even the Chinese and Hong Kong indices are are pretty much um very close to their all-time highs within the last four years.

Um so there is a tremendous opportunity out there um given what has gone on in the US equity space.

Uh unfortunately there's a huge recency bias in terms of returns um but also home biasy uh in terms of investing in only domestic equities and we think you know geopolitical concerns are easing growth is accelerating and we would argue that we were are just in the beginning phases of a a very real secular change in the international equity market.

Um, so that's that's something you know just holistically when we talk to investors, why should you be concerned with international equities?

Yes, it's diversification, but the fact of the matter is over the last year performance has been exceptionally strong.

Changing gears, let's talk about TIIB.

You know, Todd Asset Management is the subadvisor on this actively managed strategy.

Uh, for those who are not familiar with Todd Asset Management, they were founded in 1998.

They're located in in Louisville, Kentucky.

And quite honestly, their motto is very simple.

Intrinsic value all day, every day.

And their uh multifactor uh model blends, I would say, uh three of the most, you know, three specific areas of of uh investment disciplines. one, valuations, two, fundamentals, and three, market recognition to help identify the most attractive targets or prospects in terms of stocks in the international uh arena.

Um, one of the reasons why we've we've worked with Todd for many years is because they have a tremendous track record.

As I mentioned, this firm's been around for 35 years.

The average investment tenure on their investment team is over 35 years.

And the truth of the matter is the underlying strategy that TIIV implements has been live for decades and the performance has been exceptionally strong in the SMA wrapper.

In fact, if you're interested in seeing historical performance, you can go to the TIIV offering documents and we'll we have SMA performance.

But the fact of the matter is the SMA has outperformed year-to- date, threeear, 5year, 7year, 10year, almost every time frame.

So, we're super excited about this product.

Um, you know, we're we're super excited to get Todd um out there, let everybody know about how their their expertise in the international space um how they've been performing over the years and uh just bring this product to retail investors. >> Let's shift over to fixed income.

Uh one of the hallmarks of AAM's ETF lineup is the discipline focus on helping investors achieve resilient income. uh the recently launched AAM Crescent CLO ETF and your ticker there is CLC.

Um this hits an area of the fixed income market that many income investors might be missing.

Can you explain? >> Yeah, absolutely.

The one of the areas and and you sort of alluded it to it already is at the at the heart of AAM at the DNA of within AAM is really income investing. um you know whether it's dividends on equities or coupons and fixed income we're really focused and we actually have a resilient income ETF lineup which clock CLC as part of our newest edition um and this is an area the CLLO market um you know the collateralized loan obligations CLLO market we've been keeping an eye on this space for quite some time um it's a roughly a1 to$ 1.5 trillion market which otherwise uh up Until recently, I'd say within the last four or five years, really hasn't been accessible for retail investors.

And over the last four or five years, we've seen nearly $40 billion of assets come into CLLO ETFs.

And we're seeing an increased appetite for not only institutional investors, but retail investors dabbling in CLLO ETFs.

And what we've done with CLO is we realize that the CLLO market is quite complex, right?

At the end of the day, folks, investors are drawn to the CLO market mainly because of the yield pickup.

The, you know, it's not uncommon to get 100 200 basis points pickup in the investment grade arena over similar corporate bonds because of the complexity of CLOS's.

And that yield pickup has really been beneficial to investors.

And we'll get to to this in a little bit, but we think it's going to be exceptionally beneficial as interest rates continue to come down.

Investors are faced with very very hard challenges in terms of, you know, unfortunately you can't sit on the sidelines and collect 4% in their money market funds anymore.

If interest rates can we, you know, obviously we had a rate cut in October if we have another in December.

You know, now is the time to get off your cash, as we say here at AAM, and explore areas of the market like the CLLO market or low duration income strategies uh to help facilitate that that need for income.

Um, speaking of clock, we are again part of our business model here at AAM is partnering with institutional boutique asset managers that are very good at what they do.

And that is no different than what we have here with Crescent Capital.

Crescent is a uh I believe they're up around third uh 48 billion in assets under management.

Um they focus on credit strategies and in fact they issued the first CLLO back in 1993.

So again we have a uh a portfolio manager that is very well known in the space um not only on the issuer side but on the manager side as well.

We're bringing that to market.

One of the true differentiation aspects of clocc is that in the world of CLLO ETFs, they're generally either going to be AAA products or tripleB products.

What we are doing with CLOC and and Crescent is doing as the subadvisor is truly allowing investors or investors to get the full spectrum of investment grade CLOS.

And that's something that I think is going to be really really uh a real differentiating factor of CLC versus the other uh 15 or 20 CLLO ETFs that are in the marketplace. >> Yeah.

Um you know definitely some strong partnerships there.

Um and speaking of strength, the AAM Transformers ETF and your ticker there is TRFM just earned a five-star five-star Morning Star rating outperforming its category by a wide margin.

So congrats on that.

Um what aspect of the fund's underlying strategy do you believe um is driving this sustained alpha in 2025?

Yeah, I uh Transformers has has you know for those that are uh looking for growth strategies again we we focus mainly here at AAM on income generating generating solutions but we know how important it is to have growth strategies as well and and the role they play in a uh diverse uh asset allocation model and we're awfully excited to talk about transformers and the fact that as you alluded to just a few days ago it was after you know three years of uh track record uh live performance has been awarded a five-star rating by Morning Star and the performance has been exceptional I would say um through 1031 TRFM is up nearly 34% year-to date um and more impressively it's uh returned over 31% on an annualized basis over the last three years.

Now you may be saying okay well you know most likely you are uh capturing that alpha uh through mag 7 exposure right many large cap growth strategies have 40 to 50 or even 60% allocation to the mag 7 exposure and I will say that is not the case with transformers one of the major talking points around TRFM is the fact that it does not have that much uh mag 7 exposure.

In fact, it's right around 6%.

There are over 200 holdings in transformers and that's what makes the the performance quite honestly astounding is that we are able to return that without having uh a tremendous amount of mag seven exposure.

So the question becomes is how does that how does TRFM achieve that?

I will start off by saying TRFM is a rulesbased strategy.

Its underlying index is the Pence transformers index.

And again, this is an index that really focuses on R&D.

It focuses on capex and sales growth.

And in doing so, the goal of TRFM is to identify those big or brilliant companies that are transforming the world around us.

And we say big or brilliant because if you're big, you are generally spending a lot of money on R&D and coming up with something exceptional.

If you're brilliant, you have a very good concept or a product and then you get bigger and bigger and bigger.

And what we are trying to do through our rules-based index is trying to capture those arenas.

And luckily, we we've been able to do that.

The performance has been fantastic.

And lastly, I will say this transformers is not a domesticonly strategy.

If you're invested in S&P 500 or Q's, you are essentially omitting a large arena international equities that provide a lot of growth opportunity.

In fact, 63% of R&D spend comes domestically.

That means almost 40% of the R&D spent comes outside of the United States of America. and Transformers allocates 25% exposure to international equities as well and uh that's been a huge talking point for us as well. >> Turning to the AAM lowduration preferred and income securities ETF and your ticker here is PLD.

Um this has been a stalwart in your ETF lineup.

Um beyond minimizing duration risk, PFLD has other important features that separate it from just plain old vanilla ETFs that are tied to preferred securities.

Can you explain that? >> Yes.

And as as you said, PFLD has, you know, is our first product that got up over $500 million.

It's it's been a very good story for us to tell.

It's very unique.

It is the first and only lowduration preferred product in the marketplace currently.

And for that reason, you know, investors, it appeals to investors because it really does help solve a problem that preferred investors face.

And that's risk mitigation while also maintaining high levels of income.

Not only high levels of income but tax efficient income as well.

As you mentioned um PFLD does focus on low duration.

So duration mitigation is obviously um at the front of PLD but I think one area that is often overlooked as well is how we look to mitigate mitigate call risk as well.

So while we remove securities that have an effective duration over five years to really hone in on the interest rate sensitivity of the portfolio, PFLD's underlying index also removes securities that are trading north of 105% of face value.

That call screen right there is very very valuable in interest rate environments that we're experiencing today.

As interest rates come down, these preferred securities are going to be more frequently called.

And by doing this, you know, we have the ability to um minimize our exposure to those securities that are going to be called.

The other major differentiator for PFLD versus many of our peers, specifically the legacy preferred ETFs out in the marketplace is that PFLD actually includes thousand par OTC preferred securities.

And why this is unique is because if we go back maybe 7 to 10 years ago, the $25 exchange listed um retail preferreds really dominated the marketplace in terms of the preferred assets in the marketplace.

Fast forward to today, nearly 70% of the preferred stock market is in these OTC preferred securities.

Many of our peers do not incorporate these.

Um, it is more problematic on operations and trading and everything, but we are awfully proud to incorporate uh to include not only $1,000 par preferred securities, but also $25 exchange listed preferred in and PLD as well.

And that really does help, you know, obviously increase diversification, more holdings, more diversification, but it allows us to provide what we think is really an evergreen preferred product in no matter what interest rate environment we are.

We think we can provide, you know, through PLD the benefits of the asset class, high yield, tax efficiency, diversification, and upside capital appreciation as well. >> Okay, Lance.

Um, we have a final question before you leave.

Tax loss harvesting is a powerful ETF strategy.

It can help investors to reduce the tax bite and maybe even get rid of underperforming investments.

How might advisers and investors leverage AAM's ETFs with a tax loss harvesting strategy? >> Well, Stephanie, you know, first off, you know, full disclosure, I am not a text tax expert.

Um, obviously, you know, your your listeners and viewers should um seek out the the uh the expertise of professionals to answer that question.

But what I will say is this is a conversation that comes up quite a bit as we talk to financial adviserss.

Tax loss harvesting is something that many financial adviserss, many retail investors utilize going into year end.

You know, unfortunately in 2025 with with um you know, equity markets uh being very very strong, the opportunity to realize losses and carry forward and change your portfolios uh are quite minimal or minimal.

Um, but what I will say is what we've seen recently and you know there was a a Schwab asset management um report that recently came out and it alluded to the idea that with equity markets being up many mutual fund investors that are anticipating capital gains taxes and later on in 2025, they are using this as an opportunity to essentially sell out of mutual funds, realize those gains and then migrate into an ETF which happens to be more tax efficient from the capital gains perspective mainly because of the the use of custom inkinds creates and redeems.

So again, while you know, we're seeing tax loss harvesting happen, um the opportunity to do so in this environment is minimal, um but that's not stopping investors from essentially selling uh less tax beneficial rappers and using that to deploy into, you know, the ETF rapper that, you know, with over 4,000 ETFs, um you know, no matter what you're invested in a mutual fund, generally speaking, there's probably something that's very comparable in the world of ETFs. >> All right, we will leave it right there, Lance.

Thank you so much for stopping by.

It's great to see you, >> Stephanie.

It's always great.

Thank you so much. >> To learn more about the ETF strategies at Advisors Asset Management, be sure to visit aamlive.com.

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Don't forget to hit the subscribe button and the comment section below.

I'm Stephanie Stanton with ETF Guide.

Thank you so much for watching.

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