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Core conviction: What's behind Capital Group's debut ETF suite
December 14, 2022
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This article was first published on The Wall Street Journal's website on 7/22/2022.


Capital Group leaders explain how active ETFs can help advisors manage market turmoil.

The image shows a headshot of Alan Wilson, a Capital Group portfolio manager. Text next to the image includes a quote from him that says: “The challenge historically for ETFs … was you had to have those around an index bucket of stocks where you had to have one of everything."

"The challenge historically for ETFs … was you had to have those around an index bucket of stocks where you had to have one of everything."

Alan Wilson
Portfolio Manager, Capital Group

The ETF world has changed

The illustration shows a woman holding a briefcase, facing a horizon where large symbols loom overhead, including a square containing an up and a down arrow, a circle with a dollar sign in the center, a calculator and a pie chart.

Over the past decade, the use of exchange-traded funds in investment portfolios has picked up steam. Benefiting from a simplified cost structure and enhanced tax efficiency versus mutual funds, ETFs had gathered more than $7 trillion in assets by the end of 2021.1

While the ETF industry has ballooned to more than 2,800 funds in the U.S. in 2021,2 most of the assets are concentrated in index-tracking strategies. Regulatory changes in 2019 opened the door for more active strategies to enter the market, but most of these ETFs have generated only limited attention from investors and their advisors.

With an apparent shift in market dynamics underway, is now the time for active ETFs to shine?

Interest in active ETFs is widespread

Active ETF flows were positive across category groups in 2021.

The image shows a bar chart of net flows into different active ETF categories. The y axis is labeled: 2021 Estimated Net Flow and it begins at $0 and extends up to $30 billion. The x axis shows eight different active ETF categories in descending order. From left to right, the Taxable Bond category had the most flows, at roughly $27 billion. U.S. equity had the second highest flows, at roughly $18 billion. The Sector Equity category had the third highest flows, at just above $7 billion. International equity followed closely behind, at just under $7 billion. The Commodities, Alternative and Municipal Bond categories all closely followed, at well under $7 billion. The Allocation category received the lowest flows in 2021. The source for the bar chart is Morningstar Direct, based on data as of December 31, 2021.

Source: Morningstar Direct. Data as of December 31, 2021.

Much of the recent innovation in active ETFs has centered around niche funds that give exposure to certain corners of the market, with many financial professionals faced with only limited options for the core of portfolios they oversee. As advisors seek to add value to core holdings, active ETFs that offer approaches emphasizing consistency, downside awareness and fundamental-based research may help enhance an advisor’s tool belt. Say hello to the next generation of ETFs.

The illustration shows a surfer gliding on flat water with a large wave curling up behind him. The wave contains currency symbols for the U.S. dollar, Japanese yen and the European euro.]

Managing volatile times

In recent years, investors have benefited from taking a “risk on” approach to investing. In such a market environment, which was characterized by relatively low volatility and hyper-low interest rates, many financial professionals could easily rely on index-tracking investments that helped keep costs low and returns close to the overall market.

Yet over the past year, the market has changed dramatically, with businesses and the economy beset by high inflation, global supply chain shortages, rising interest rates and heightened geopolitical tensions.

"The chance to really go through an uncertain environment and discern among companies who’s going to be hurt and who’s going to be helped and construct the portfolio that way ... it’s kind of a great time to be able to do this."

Alan Wilson
Portfolio Manager, Capital Group

Strategies to get through turbulent times

It's difficult to see the value of your investments fall. But during challenging times, try to keep some fundamental investing principles in mind:

Image shows six squares. The first square’s color is blue, and the headline says: Look beyond the headlines. The text below the headline says: Sensational news headlines are meant to grab your attention, but it can be dangerous to let the media influence your investment decisions. Ignore the noise and stay focused on your goals. The second square’s color is maroon, and the headline says: Don’t forget history. The text below the headline says: Market declines are part of the economic cycle. Historically, recoveries have followed downturns. The third square’s color is light green, and the headline says: Maintain a diversified portfolio. The text under the headline says: Different investments may go up and down at different times. Spreading your money over a variety of investment types and regions can help reduce volatility in your overall portfolio. The fourth square’s color is dark green, and the headline says: Don’t try to time the market. The text under the headline says: No one knows the perfect times to get in and out of the market. Consider holding quality investments with the potential to rise in value over the long term. The fifth square’s color is brown, and the headline says: Invest regularly, even when the market is falling. The text under the headline says: Instead of fearing down markets, think of them as opportunities to invest at lower prices. The sixth square’s color is dark blue, and the headline says: Keep in touch with your financial professional. The text under the headline says: Your financial professional can help you avoid making decisions that could jeopardize your long-term investment goals, which often remain unchanged during market declines.
The image shows a blue square, and the headline says: Look beyond the headlines. The text below the headline says: Sensational news headlines are meant to grab your attention, but it can be dangerous to let the media influence your investment decisions. Ignore the noise and stay focused on your goals.
The image shows a maroon square, and the headline says: Don’t forget history. The text below the headline says: Market declines are part of the economic cycle. Historically, recoveries have followed downturns.
The image shows a light green square, and the headline says: Maintain a diversified portfolio. The text under the headline says: Different investments may go up and down at different times. Spreading your money over a variety of investment types and regions can help reduce volatility in your overall portfolio.
The image shows a dark green square, and the headline says: Don’t try to time the market. The text under the headline says: No one knows the perfect times to get in and out of the market. Consider holding quality investments with the potential to rise in value over the long term.
The image shows a brown square, and the headline says: Invest regularly, even when the market is falling. The text under the headline says: Instead of fearing down markets, think of them as opportunities to invest at lower prices.
The image shows a dark blue square, and the headline says: Keep in touch with your financial professional. The text under the headline says: Your financial professional can help you avoid making decisions that could jeopardize your long-term investment goals, which often remain unchanged during market declines.

Investors suddenly faced declining values in their investment accounts. For advisors, this shift in the investment climate has required them to juggle the responsibilities of rethinking struggling portfolios and calming the nerves of jittery clients.

In such an environment, advisors may want to consider reorienting the core of portfolios with an additional layer of oversight. Actively managed ETFs can provide a measured approach to selecting investments, helping advisors pursue a smoother return profile in an uneven market environment. In searching for the right ETFs, advisors should seek out active managers who have an established history of delivering strategies that are building blocks for core portfolios.

The illustration shows five people holding up giant chess pieces. The queen chess piece is in the middle, and the most prominent. It has a U.S. dollar sign on it.

An active strategy to help investors

Capital Group has a more than 90-year history of using a disciplined approach to active management to strengthen the core of an individual investor’s portfolio. So it’s no surprise that the company’s newly launched suite of six active ETFs is in keeping with that tradition.

There’s nothing particularly flashy or trendy about the offerings. Instead, each ETF is designed to pursue timeless investor needs. The funds consist of three growth portfolios that offer varying degrees of domestic and international exposure, a core U.S. equity fund, a U.S. equity fund that emphasizes income and, lastly, a fixed income offering with a “core plus’’ strategy that pursues income but with a degree of capital preservation.

The image shows a headshot of Holly Framsted, Director of ETFs at Capital Group. Text next to the image includes a quote from her that says: “When we considered bringing ETFs to market … we chose the transparent active structure because it enabled us to deliver on tax efficiency for clients, and it enabled us to package the best of who we are as an organization.”

“When we considered bringing ETFs to market … we chose the transparent, active structure because it enabled us to deliver on tax efficiency for clients, and it enabled us to package the best of who we are as an organization.” 

— Holly Framsted, Director of ETFs, Capital Group

Capital Group’s debut suite of active ETFs

Designed to help investors pursue their long-term goals. Capital Group's debut suite of active ETFs includes U.S.-focused funds Capital Group Growth ETF (CGGR), Capital Group Core Equity ETF (CGUS) and Capital Group Dividend Value ETF (CGDV), international and global funds Capital Group International Focus Equity ETF (CGXU) and Capital Group Global Growth Equity ETF (CGGO) and fixed income fund Capital Group Core Plus Income ETF (CGCP).

The chart shows Capital Group’s six ETFs arranged on a continuum, with Growth shown on the top of the funds and Income shown on the bottom. The ETFs with a growth objective appear on the left of the chart in a dark blue color. They include: CGGR, the Capital Group Growth ETF; CGXU, the Capital Group International Focus Equity ETF and CGGO, the Capital Group Global Growth Equity ETF. Two of the ETFs fall where the Growth and Income lines overlap. The ETFs with a growth and income objective are shown in a light blue color. They include: CGUS, the Capital Group Core Equity ETF and CGDV, the Capital Group Dividend Value ETF. CGCP, the Capital Group Core Plus Income ETF, shown in green, appears on the far right and has an income objective.

The suite of ETFs focuses on major asset allocation categories used by financial advisors every day. And the strategies are designed to reflect long-term investment horizons that support downside awareness to pursue consistency over varying market environments. Moreover, these funds carry only a modest charge, with an average weighted expense ratio of only 40 basis points.3

Putting ETFs into action: 3 ideas for using Capital Group’s ETFs to build a portfolio’s core

The image shows three pie charts. The first pie chart is labeled : For growth. It shows 25% allocated to CGGR, 20% to CGCP, 15% to CGXU and 40% to CGGO. The second pie chart is labeled: For growth and income. It shows 35% allocated to CGCP, 25% to CGDV, 15% to CGUS and 25% to CGGO. The third pie chart is labeled: For tax-aware growth and income. It shows 25% allocated to CGDV, 20% to TFEBX, 25% to CGGO, 15% to CGUS and 15% to HIMFX. Both TFEBX and HIMFX have a superscript dagger symbol, which refers to a footnote that says: TFEBX (Tax Exempt Bond Fund of America®) and HIMFX (American High-Income Municipal Bond Fund ®) are American Funds ® mutual funds, not Capital Group ETFs. Mutual funds have different features and tax considerations than ETFs.

The six ETFs embody what Capital Group has long been known for: an active-management approach, supported by a multimanager system and deep fundamental research, all working to help investors achieve their long-term investment goals.

Throughout our history, we’ve weathered past storms.

Learn how our new suite of active ETFs can strengthen a portfolio’s core during volatile times.

LEARN MORE
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RELATED INSIGHTS

1Data from Morningstar.

2Source: ETFGI as of December 31, 2021.

3The expense ratios for Capital Group ETFs are as follows: CGGR — 0.39%, CGXU — 0.54%, CGGO — 0.47%, CGUS — 0.33%, CGDV — 0.33%, CGCP — 0.34%. The expense ratios are as of the funds' prospectuses available at the time of publication. The expense ratios are estimated.

4TFEBX (Tax Exempt Bond Fund of America®) and HIMFX (American High-Income Municipal Bond Fund®) are American Funds® mutual funds, not Capital Group ETFs. Mutual funds have different features and tax considerations than ETFs.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
Capital Group exchange-traded funds (ETFs) are actively managed and do not seek to replicate a specific index. ETF shares are bought and sold through an exchange at the then current market price, not net asset value (NAV), and are not individually redeemed from the fund. Shares may trade at a premium or discount to their NAV when traded on an exchange. Brokerage commissions will reduce returns. There can be no guarantee that an active market for ETFs will develop or be maintained, or that the ETF's listing will continue or remain unchanged.
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