Capital Group Launches US-Centric Small/Midcap Growth ETF
New York-based Capital Group on Thursday launched a U.S.-focused small/mid-cap exchange-traded fund strategy, the ETF issuer’s first foray into the space.
of Capital Group US Small and Mid Cap ETF (CGMM) The actively managed US-focused fund is managed by Chief Investment Officer Rose Hongsaragon, who manages the Capital Group Global Growth Equity ETF (CGGO), along with three other named managers.
The fund’s expense ratio is 0.51% per annum and is indexed to the Russell 2500 index. Initial holdings are overweight financials, consumer discretionary and consumer staples from the Russell 2500 and underweight healthcare, energy and real estate.
Since launching into the ETF ecosystem three years ago, Capital Group has now amassed $50 billion in AUM and 22 ETFs, and claims to be the fifth largest issuer of active ETFs.
While the firm runs international small-cap mutual funds, the domestic small/mid-cap strategy is new to the fund, and was created as an exchange-traded fund, partly in response to advisors, said Scott Davis, head of capital at EFF. group. CGMM will complete the issuer’s core building block ETFs, allowing the firm to launch all of its Capital Group ETF models planned for March.
Capital Group’s new ETF puts it in competition with established, popular and value small-cap ETFs. American Century Investors (AVUV) And Dimensional Holdings (DFAS). CGMM is designed to fit a core-to-core growth strategy that is balanced between small and mid-caps. What makes it unique, Davis says, is Capital Group’s structure, where all managers and analysts select the top holdings for the portfolio.
The company plans to maintain a market cap on holdings by selling its mid-cap label once it starts growing.
It’s no secret that the small cap space has seen large caps over the years. Starting a new fund when prices are low can be beneficial as cycles turn, but convincing investors to buy underperforming funds is difficult. Flows often follow performance, so funders must balance these competing factors. Davis Capital Group focuses on the long term when raising new funds.
“We really come into the market with a strategy where we know we can deliver something that is sustainable and beneficial to customers,” he said. “So I wish I could tell you that we’re smart enough to time these things, but really, that’s not how we approach it.”