Capital Group Also Expands ETF Offerings

BenWP

Previous discussions here have touched on the six Capital Group actively-managed ETFs, particularly CGGR, CGGO, and CGDV. As of late September, there are now fourteen, covering several asset classes. My reading of the presentation in the link below suggests that the target audience is financial advisors as opposed to individual investors. There’s a new global balanced fund, some FI, and what seems to me to be a fair amount of overlap in the equity lineup. I tried to discern the main difference between CGXU (old) and CGIE (new), funds which both fall in the international growth category. The latter might be less aggressive, as it limits ER exposure. The two dividend funds, CGDV (old) and CGDG (new) hardly differ, although the new one might be a little tamer. It’s nice to have choices among active ETFs, even if they add to proliferation. To compensate, American Funds might do something about all the ridiculous OEF share classes they sell.

https://www.capitalgroup.com/advisor/investments/exchange-traded-funds/resources/meet-the-suite.html

hank

Anybody care to opine on whether an ETF or conventional mutual fund run by the same company / team is a better long term bet? Of course fees are usually lower for an ETF. That’s a big deal. But a conventional mutual fund has a more stable investor base. Might make it easier to manage, providing more latittude for managers. Also, as an investor in a mutual fund with tighter trading restrictions you may feel more committed and less likely to bail out early forsaking bigger gains. Time is more on your side, so to speak, in a mutual fund.

And than I wonder if the institution administering the funds really applies the same level of resources to operating an ETF that might well be pulling in only half the fees that their longer running mutual funds do? Perhaps there are some good comparisons now that ETFs have been around a while, Some 5 / 10 year returns of “companion” mutual funds and ETFs? Indexing is one thing. I’d expect passively managed funds to have similar outcomes. It’s the actively managed ETFs vs mutual funds I’m wondering more about.

BenWP

@hank: it may be too early to judge whether the ETF will outperform. In the case of Capital Group, the marketing materials discourage comparison with the OEFs, pointing out that the teams of managers are not the same and that the ETF is a new vehicle and is not intended to replicate an existing MF. I looked at the respective managers of CGGR and CGDV and discovered that each of the four have other MF assignments, but not necessarily in the same niche. In other words, the team members for CGGR, the growth vehicle, don’t work only on growth funds. Nor do the team members of CGDV work only on OEF dividend strategies. The teams represent diverse investment approaches and they appear to have many years of experience. From what M* says, each team member manages a slice of the pie, resulting in separate concentrated portfolios. Maybe other fund companies do something similar; in any event, the American/Capital record over the years inspires confidence. It may be a few years before we know how the transparent active fund performs in up and down market cycles compared to other funds structured traditionally.

yogibearbull

Resource needs are different for OEFs and ETFs.

When you buy OEF from a fund firm directly, the administration part (account opening, transactions tracking, yearly 1099, etc) is the responsibility of the fund firm.

3rd party brokerage platforms developed in 1980s, with TFs first, now lots of NTFs, that shift all that work to the 3rd party. Of course, they don't do this for free, but charge platform-fees of 25-50 bps to be on the platform (those are paid for CDs too). Big firms that have their own fund administration arms (Fidelity, Vanguard) don't offer their funds via these 3rd party platforms. Moreover, some Vanguard funds have lower ERs than what these platforms charge, so that is a nonstarter. But retail customers like the convenience of consolidation with these 3rd party platforms, and NTFs and commission-free trading were just gravy. It is also liked by fund boutique firms who can just start 1 or more funds with a handful of portfolio managers, and not much else.

12b-1 fees came into play to make these arrangements explicit, but not all funds use them.

Vanguard went through an interesting transformation recently when it forced all its retail customers to switch from mutual fund a/c to brokerage a/c (still at Vanguard), but it has to maintain the old mutual fund platform anyway for 401k/403b/457, 529, etc.

With ETFs, there is not even the option of in-house fund administration. Customers can only buy those from 3rd party brokers. Of course, brokers do that with stocks and bonds and do charge for their services somehow - explicitly, or hidden in quotes (e.g. for bonds), or make money by lending your securities (from margin a/c).

A recent development is the active equity ETFs. After lot of resistance and delays, the nontransparent-active came first (and were failures), then came semitransparent-active ETFs (those got traction), and now many are just going for transparent-active ETFs. The issue of frontrunning based on daily holdings disclosure looks like a dud. People may do that for Warren Buffett or Carl Icahn, but not for run-of-the-mill fund managers.

hank

Thanks both. Yogi, you may have gotten me on a slip in terminology. By “administration” I meant management (not record keeping). The fund manager is typically backed by teams of researchers, analysts, investment accountants and legal staff when deciding what to buy and sell. It’s this “second tier” of management I’m wondering about. Will it be as strong / deep / experienced for an ETF like Franklin’s INCM with a .38% management fee as it is for their FKIQX which charges nearly twice as much? Both invest heavily in non investment grade securities. Imagine the degree of scrutiny that must go into those types of buy / sell decisions.

No opinion on this. If I seem to be taking sides it’s only from a devil’s advocacy point of view.

rforno

Thanks for the news update. I like these ETFs which are transparent on a daily basis, unlike OEFs which report quarterly at best. I always feel like I'm grossly behind the times when reading 'outdated' OEF fund reports and literature - especially when they talk about "going forward" or "looking ahead" which usually means that when I'm reading it, that timeframe often is actually "recent history."

Still stalking CGDV but not bought into it. I'll check their other dividend fund out, but my gut tells me it'll just be another 'me too' div growth fund.

MikeM

Thank you @BenWP for the post. I'm already invested in CGDV and CGGO. Out of all these new options, the balanced fund, CGBL, holds the most interest for me.

At this point, these new funds are too new to use the over-lap tool.

https://www.etfrc.com/funds/overlap.php

BaluBalu

@hank, ETFs AUMs are more stable than mutual fund AUMs. This can be observed from mutual funds besieged with outflows converting into ETFs. Equity mutual funds will continue to lose AUMs to ETFs.

I always wondered how American is going to convert all those mutual fund classes into ETFs to avoid a taxable event for shareholders while locking in AUMs.

yogibearbull

AF, the champion of the class-mess, can split taxable and retirement classes of its mutual funds into separate funds, close/freeze all taxable classes, and then turn them into ETFs. So, a multistep, slow process.

hank

BaluBalu said:

ETFs AUMs are more stable than mutual fund AUMs. This can be observed from mutual funds besieged with outflows converting into ETFs .

I can’t argue with that. Thanks.

hank

It occurs to me that the most widely admired, favored, tracked and discussed fund on this forum (over the years) is a mutual fund. One conceived back in the ”dark ages” (1986).

Dave Ramsey voices some opinions on investors and ETFs.

Excerpt - ”Ramsey sometimes gets painted with the ‘anti-ETF’ brush. But to be clear, Ramsey’s all in favor of using ETFs when used properly. For investors who can use ETFs as part of a long-term, buy-and-hold investment program, rather than as trading vehicles, Ramsey has nothing bad to say about them.”

yogibearbull

@hank: "mutual fund. One conceived back in the ”dark ages” (1986)."

How about 8/31/1976, the inception date of the first publicly available VFINX? 1986 could be a typo too.

In some retirement accounts, similar indexed funds existed even earlier.

BTW, Dave Ramsey made a fool of himself recently when he said on his show that 8% w/COLA withdrawals from all-stock funds were safe and berated others for being alarmists with only 4% w/COLA. He was shown to be incorrect almost immediately in that if one started with 8% w/COLA withdrawals in 01/2000 and an all-stock fund, money would have run out by now.

hank

Yogi - You think there’s been more positive chatter here over the years about VFINX rather than PRWCX? Could be. Not my impression. Both mutual funds. Yes, VFINX is older.

Regardless of whether one likes Ramsey or not, I don’t know how you can argue with his point that most retail investors are better off with a long term “buy and hold” approach rather than frequently trading. That would go against most everything ever professed by the greats like Bogle, Templeton, Marks, Buffett.

Mark

I'm with @rforno on these new offerings and fail to see anything special about CGDG at this time. I've done ok with CGDV to date but that's not saying a whole lot.

shipwreckedandalone

CGDV Non US Equity 6%, Large Value, lower div, Equity holdings = 50. CGDG Non US Equity 45%, Large Blend, higher div, Equity holdings = 76 each. CGDV YTD M* shows percentile category performance 1 out of 1209. CGBL (balanced) added to watch list. Thanks for making me aware of new ETF's.

Baseball_Fan

How can CGDV be called Large Value when they hold stocks like say MSFT, AAPL, META which in aggregate both of them having price/free cash flow in the high 20's/30's or something like that? Does that scream value to you?

Maybe still a really good fund but hasn't outperformed cash on a return/risk basis..yet?

Hmm.

Sven

Maybe still a really good fund but hasn't outperformed cash on a return/risk basis..yet?

YTD return of CGDV is over 16% while money market funds yield 5.3%. It will likely to outperform cash next year.

CGDV is more of a blend large cap ETF and Morningstar messed up again.

yogibearbull

CGDV has Div Value in its name.
M* has it on the borderline between Value & Blend.
M* market-caps (SC, MC, LC) are relative. Others may use absolute criteria & their designations may be different.

MikeM

From the Capital Group summary page for CGDV:

Summary
"Value" refined. Seeks to produce consistent income that exceeds the average yield of the S&P 500 by focusing on companies that pay dividends or have the potential to pay dividends.

Fund Objective
The fund's investment objectives are to produce income exceeding the average yield on U.S. stocks generally and to provide an opportunity for growth of principal consistent with sound common stock investing.

Distinguishing Characteristics
Invests primarily in dividend-paying stocks of larger established U.S. companies.

Risk/reward is relative to time. Depends on your goals of course, but if you aren't timing the markets, this fund has, and I think will continue over time to have a better risk/reward return than cash at 5.3% - and dropping.

Baseball_Fan

Good point @MikeM relative to time. @Sven. I was referring performance since inception not ytd. Since inception, I believe the point I was making was directionally correct.

Mitchelg

Their ETF's appear to be nothing special.

BaluBalu

The ex-date for ETF Dec distribution is 12/27-28 but no amounts are yet disclosed. What is about ETFs that Capital Group is not able to estimate distributions even 3-4 business days before ex-date? Just curious.

Mark

"What is about ETFs that Capital Group is not able to estimate distributions even 3-4 business days before ex-date? "

@BaluBalu - I don't think that's specific to Capital Group. I also own ETF's from Invesco, Fidelity and others where a distribution is never announced but just shows up one day. I get why some investors would like to know but I don't own enough where it affects any plans or strategies I might have.

BaluBalu

I want to own these in my taxable account and have been waiting to see how much non-dividend distributions (i.e., capital gains) they might be throwing off. Last year was not anything out of the ordinary but wanted to get one more year data before deciding. Does anyone here own these in their taxable account?

msf

The Capital Group published cap gains estimates for its ETFs along with the rest of its funds, on December 6 (link is from Shadow's post in 2023 capital gains distribution estimates):
https://www.capitalgroup.com/advisor/tax/2023-year-end-distributions.html

It republished estimates (same data) more recently (Dec 7th) for individual investors here:
https://www.capitalgroup.com/individual/service-and-support/tax-center/2023-year-end-distributions.html

Some institutions publish income estimates, many do not. Fidelity doesn't. Links again courtesy of Shadow:
https://www.fidelity.com/mutual-funds/information/distributions#/?table=estimated
https://institutional.fidelity.com/app/tabbed/products/FIIS_SP52_DPL6.html?navId=324

A few institutions produce estimated distributions with data as late as early December (e.g. Vanguard), but most seem to at best produce cap gains estimates a single time once October 31st data is available.

There's a reason for that.
https://blog.umb.com/fund-services-insight-mutual-fund-year-end-distributions/

As explained in that piece, in terms of dollars, what matters are primarily dates on the calendar (usually Oct 31 and Dec 31), not record dates. Though the number of shares outstanding on the record date does determine how a fund's gains and income are partitioned.

ETFs, unlike OEFs, have record dates that are a day later than their ex-dates.

BaluBalu

I had looked up the potential YE ETF capital gain distributions at the Capital Group website (the part of the table that deals with ETFs). They are still notated with a "-". I guess you are treating "-" means zero.