Most active funds underperform their passive peers over the long run, but volatile or declining markets can make active management skills more valuable. While large-cap growth stocks are driving today’s bull market, rising interest rates and other risk factors could jeopardize the rally heading into the second half of the year. As a result, investors may want to consider hedging their bets by factoring value and quality into their portfolios.
In this article, we’ll look at two newly launched active ETFs targeting value for growth stocks and quality for income stocks, and why you may want to consider them for your portfolio.
Natixis Blends Growth & Value
The S&P 500 index is up nearly 20% since the beginning of 2023, rewarding investors in high-growth stocks like NVIDIA Corp (NVDA) (209%) and Meta Platforms Inc. (“META”:) (152%). But rising interest rates and geopolitical risk could eventually take a toll on economic growth and send the stock market off its near-record highs. The challenge for investors is retaining exposure to growth stocks while hedging against the risk of an economic downturn.
Natixis’ newly launched Focus Growth ETF (LSGR) hopes to achieve these goals. Using the Russell 1000 Growth index as a baseline, the fund managers seek to maximize risk-adjusted returns by blending a traditional strategy of sustainable growth with deep fundamental research capabilities to identify high-quality businesses with sustainable competitive advantages. These businesses could achieve strong growth with a buffer against an economic downturn.
While the fund doesn’t disclose its exact holdings, its proxy portfolio includes companies like Google, Amazon, Autodesk, Meta, NVIDIA, Oracle, Tesla, and Disney. Investors looking for exposure to these kinds of companies—but with allocations factoring in valuation—may want to consider adding the fund for their large-cap growth allocation.
Value-focused ETFs
| Name | Ticker | Type | Actively Managed? | AUM | YTD Ret (%) | Expense |
|---|---|---|---|---|---|---|
| Vanguard Value ETF | VTV | ETF | Passive | $103.54B | 4.7% | 0.04% |
| iShares Russell 1000 Value ETF | IWD | ETF | Passive | $52.02B | 7.4% | 0.18% |
| Vanguard Small Cap Value ETF | VBR | ETF | Passive | $26.19B | 10% | 0.07% |
| iShares S&P 500 Value ETF | IVE | ETF | Passive | $26.16B | 14.1% | 0.18% |
| iShares MSCI EAFE Value ETF | EFV | ETF | Passive | $17.07B | 9.1% | 0.35% |
iMGP Combines Income & Quality
Inflation is on the rise across the economy, but the S&P 500 index’s dividend yield remains under 2% thanks to rising stock prices, creating challenges for retirees. While bonds offer higher yields and income potential, rising interest rates are taking a toll on bond prices and investors are missing out on the rally in equity prices. As a result, many investors are seeking a middle ground where they can achieve equity exposure and higher yields than the S&P 500 index.
The recently launched iMGP Berkshire Dividend Growth ETF (BDVG) takes a similar approach to LSGR but focuses on income rather than value. Unlike many passively managed dividend ETFs that base allocations on market capitalization or dividend yield, the actively managed BDVG focuses on building a portfolio of high-quality businesses offering an attractive dividend yield, consistent dividend increases, and sales and earnings growth fueling future dividends.
The fund’s concentrated portfolio consists of about 35 companies, including well-known names like JPMorgan Chase & Co. (JPM) (4.58%), Microsoft Corp. (MSFT) (4.68%), and Nucor Corp. (NUE) (4.98%). While the fund is brand new and hasn’t paid a dividend yet, the managers are targeting a dividend yield that’s equal to or higher than the S&P 500 index’s yield.
Dividend-focused ETFs
| Name | Ticker | Type | Actively Managed? | AUM | YTD Ret (%) | Expense |
|---|---|---|---|---|---|---|
| Vanguard Dividend Appreciation ETF | VIG | ETF | Passive | $70.45B | 9.5% | 0.06% |
| Vanguard High Dividend Yield ETF | VYM | ETF | Passive | $50.55B | 1.9% | 0.06% |
| Schwab U.S. Dividend Equity ETF | SCHD | ETF | Passive | $49.83B | -0.2% | 0.06% |
| iShares Core Dividend Growth ETF | DGRO | ETF | Passive | $24.62B | 6.5% | 0.08% |
| SPDR S&P Dividend ETF | SDY | ETF | Passive | $22.55B | 1.3% | 0.35% |
The Bottom Line
The S&P 500 is up nearly 20% since January, but rising interest rates and other risk factors could jeopardize the rally. As a result, investors seeking a blend between growth and value or income and quality may want to consider a couple of newly launched active ETFs.
