Growth Unleashed: Preferred Stocks, CLO Strategies, and Companies Redefining Tomorrow’s Economy

Welcome to the program. I'm Thalia Hayden. It's great to have you with us.

For over a decade, US stocks stole the spotlight, dominating portfolios, headlines, and returns. But the tide is shifting. International markets are stepping back into the ring, armed with better valuations, improving fundamentals, and currencies finally working in their favor. After a long wait, global diversification suddenly looks smart again. This isn't about abandoning America. It's about expanding your opportunity set.

That's where Advisor's Asset Management steps in. Their ETF lineup spans everything from international stocks to low duration preferred to quality growth strategies which are subadvised by specialists with deep domain expertise. Here to elaborate is the managing director and head of ETF product at Advisor Asset Management, Lance McRae. Thanks for joining us, Lance.

Yeah, thanks for having me.

All right, let's start with the hot performers, international stocks. Many investors are still missing out because of home country bias. One potential solution for overseas exposure is the AAM Todd International Intrinsic Value ETF, ticker TIIV. What makes this ETF a compelling solution?

Well, I think you're spot on here, right? You know, you mentioned earlier about home bias investing, right? And home bias investing has been something that US-based investors have dealt with forever, quite honestly. But I would also throw in recency bias to the mix as well, right? If you think about it, between 2014 and 2024, the S&P 500 outperformed the Acme XXUS index by nearly 200%. If you think about it, that's 8% per year for nearly a decade.

So, it's not hard to think and understand why international equities have sort of been out of favor or not been thought about by US investors. But the good news is, as you said, the times are changing, and as we head into 2026, while many folks are talking about equal weight outperforming and the broadening of the market and how Russell 2 is outperforming Russell 1, this is a great opportunity to take a step back and say listen, the broadening of the equity market is not just domestic, it's international as well. And quite honestly, I don't think you have to go too far to see that.

In fact, it started over a year ago. In 2025, the Aquex XUS outperformed the S&P 500, returning 32%. That's 15% more than the S&P 500. So, people are starting to catch on. And the question, as you kind of alluded to, is how do you capitalize on that? And that's where the ETF that you mentioned, the AAM Todd Intrinsic Value ETF, really comes into play. Because at AAM, we think about when you're trying to tap into international markets, it's finding the expertise of an active manager, and also one that has a really successful track record.

And that's what we have here with TIIV and Todd Asset Management. We have a firm that has a 30-plus year track record managing international equities. In fact, this same strategy that TIIV is built off of has been in the marketplace for 20-plus years as an SMA. So when you look at performance, you can look at the composite performance of that strategy and see 1, 3, 5, 10 since inception, it has outperformed its peers and its benchmark for that time frame. So really excited about that product. It's really a valuation. It's a proprietary system built by Todd Asset Management.

And when we take a step back even further, we look at the backdrop in the macro environment for international equities. We look at valuations and global monetary easing and currency tailwinds and AI 2.0. And we think we're just in sort of the beginning phases of the secular bull strategy or bull market for international equities. And we think TIIV is a great place for investors to park some assets that are looking to increase their international exposure and a very durable, a very proven international manager and strategy.

Got it. The AAM Transformers ETF, ticker TRFM, recently garnered a five-star rating from Morningstar in the highly competitive global large stock growth category. Congratulations on that. What contributed to TRFM's track record of success and what distinguishes it from other traditional growth equity ETFs?

Yeah, well, first off, again, thank you five stars. It's always great to have a five-star product on the lineup. We're super excited about that and the performance has been fantastic. But first and foremost, Transformers, TRFM, is built to capture these companies driving major technological and behavioral transformations worldwide. It's a rules-based strategy. It follows the Pence Transformers index, which again is an index designed to hold US equities and listed ADRs that are really positioned to benefit from significant disruption in technological innovation.

When we think about these types of, I don't want to say nichy, but thematic type strategies, they're often one-off, right? It's either robotics or AI or cybersecurity or some other type of nichy thematic strategy. And what you get with Transformers is a strategy that really brings it all together. We're talking AI, cloud infrastructure, semiconductors, robotics, aerospace innovation, and next-generation industrial technology technologies, right? So, it's a strategy that's really built around R&D focus, right?

If you're spending a lot of money, chances are you're going to either be doing something very good, find something and spending a lot of money on R&D, or you're small and you do something very well and then you get acquired by larger companies. So, it's a revolving door and that's what we try to capture with TRFM and its underlying index. Now, I will say, like many of these strategies that TRFM goes up against in the global growth category, it does have a large allocation to technology, nearly 53%. And I think you would assume that.

But what's also interesting, it has 23% exposure to industrials as well. So, you're getting diversification, right? We mentioned it. This is the time for diversification. We mentioned international exposure and diversification. Transformers does that here as well. Nearly 25% of the exposure in Transformers is positioned to non-US domestic equities through the ADR. So, you're getting international exposure, you're getting US exposure, and you're getting companies that are really transforming the world behind us.

And lastly, when you talk about Transformers, coming back to the five-star, obviously you can't get a five-star rating from Morningstar without having fantastic risk-adjusted returns. And I'm certainly happy to report that TRFM has returned over the last 3 years nearly 29%, which is really spectacular and currently we're in the fourth percentile of our Morningstar category. So super exciting times for Transformers for those investors that are looking to diversify their large cap growth allocation. It holds over 250 names and most importantly when you think about those performance numbers that I just mentioned, no security in TRFM is over 105 basis points, so 1.05% allocation. So you're really getting diversification with the strategy.

Tradition preferred stock ETFs often carry significant interest rate risk due to their long-term nature. Given the current interest rate environment, how does the AAM low duration preferred and income securities ETF ticker PFLD balance risk while still aiming for attractive yield income?

Yeah, PFLD is really, you know, has been our flagship for a number of years. As many folks know, AAM is built off of income, whether it be dividends in the equity space or coupons in the fixed income space. PFLD was the first low duration product in the preferred asset class in the marketplace and today has over $450 million in assets. It's a product that we think is really unique in the marketplace mainly because of what you alluded to.

It's a strategy that provides allocation that has relatively low correlation to traditional stocks and bond portfolios, low beta, but it also provides high income through the hybrid and preferred securities market. But what we try to do is to do something that's really important in this type of environment where while we expect a few rate cuts in 2026, we also expect a lot of volatility. And unfortunately, those investors that rely on the preferred asset class to gain income, they often don't realize the amount of duration risk they take on by investing in these securities because these are longer-dated securities.

They can be impacted quite a bit by interest rate moves up or down and also volatility. So when we created PFLD and the underlying index for PFLD, it was really capturing the asset class, capturing the benefits of the preferred and hybrid asset class. So we're talking low correlation, diversification, capital potential for capital appreciation, high income, tax efficient income. But doing it in a way that's much less risky.

And we do that by the underlying index removes all securities that have effective duration of 5 years or more, which again tones down the duration, so you have less interest rate sensitivity. But also we remove securities on a monthly basis from the portfolio that have we have a call screen. So if a security is trading north of 105% of face value, that security is automatically removed from the underlying index and therefore removed from the portfolio. So again, we're trying to capture the asset class, but we're trying to capture it in a less risky way.

Okay, one last question, Lance, before you leave us. Over the past few years, some investors were disappointed by the lackluster performance of bond index funds, which weren't able to swiftly react to rapid changes in interest rates. The AAM SLC low duration income ETF NYSE Loi takes a different approach because it's actively managed and can adapt. Can you tell us more about that?

Yeah, absolutely. Loi, as we've referred to, is an actively managed fixed income product managed by the team at SLC management. This is an active management active team that has extensive background and track record of managing corporates and securitized assets. In fact, very similar to TIIV, the active manager behind Loi has a 10-plus year track record managing the strategy and other rappers. And the performance has been fantastic again outperforming its benchmark on a 1, 3, 5, 10 and since inception basis.

So while this strategy has only been or this ETF has only been in the marketplace a year, the strategy that's underlying it has been a time-tested strategy managed by SLC. And really the true benefit of Loi in this environment is for those investors that, you know, unfortunately with interest rates coming down, the free money, the high yield that investors can get in money markets or really short duration strategies might not be meeting their needs from an income standpoint. And what Loi does is it sort of plays that middle ground where you may have cash to work or you want to take less duration out of the market, duration risk out of the market.

Or quite honestly, maybe you just want to increase your yield on sort of the front end of the curve. And that's what Loi does. The team at SLC, they focus on securitized assets, which as most folks generally know, they are some sort of yield premium over traditional corporates or treasuries. And the team tries to capitalize on that.

At the core of Loi is a sort of a relative value nature where these portfolio managers can tactically rotate between sectors and based off of market conditions and provide that yield premium that they may not otherwise get. So, at the end of the day, you're getting a well-rounded active manage low duration strategy that, you know, think of it as sort of a core plus on the front end of the curve. One that can get sizable pickup and yield versus our low duration counterparts. And oh, by the way, when it's only 15 basis points, it's one of the cheapest low duration securities or ETFs in the marketplace. And we think this is going to be a fantastic product given the current marketplace.

Thanks so much, Lance, for dropping by and sharing your insights. To learn more about the ETF strategies we covered today, visit Advisor Asset Management at aamlive.com. The link is posted in the description section below. I'm Thalia Hayden with ETF Guide. Thanks for watching and we'll see you next time.