Capital Group’s CGUS Elevated in Morningstar Report

Morningstar’s midyear update on its mutual fund and ETF Medalist Ratings has added a single fund since the last update in January, the Capital Group Core Equity ETF (CGUS), the addition of which was influenced by investor demand.

Stephen Welch, senior analyst of manager research at Morningstar, acknowledged the unique nature of the CGUS coverage, which debuts with a neutral analysts’ rating in the forward-looking system.

“The decision to add this fund was partially driven by AUM and client demand,” he said of the ETF that has grown to $3.2 billion since its February 2022 launch.

Welch described the ETF’s “significant transition” in management that “muddies the outlook for this strategy.”

CGUS Decision Driven by Demand, AUM growth

Capital Group, the parent of American Funds, entered the ETF space of February 2022 applying its traditional multimanager approach.

“While six named managers run individual sleeves here, this strategy lost three of them in June,” Welch explained. “In total, roughly 40% of assets moved to the team of Keiko McKibben, Charles Ellwein, and J. Blair Frank. Caroline Jones also became a named manager in June.”

The actively managed CGUS is up 27.2% over the trailing 12 months, which compares to a 24.2% gain by the SPDR S&P 500 ETF Trust (SPY) over the same period.

In his analysis of CGUS, Welch wrote, “With an eye toward quality, this fund should hold up better in times of distress.”

“This fund tracks the firm’s variable insurance series growth and income vehicle, which goes back to the mid-1980s,” he added. “For example, in 2022, the strategy’s 16.3% loss bested the S&P 500’s 18.1% drop in part thanks to a lighter technology stake and industrials picks such as Northrop Grumman.”

Welch added that the ETF has also been less volatile than the S&P 500, so while the strategy narrowly lagged the index since Frank joined in early 2006 through April 2024, its risk-adjusted results were in line with the index.

Unlike Morningstar’s popular star ratings, which are based on the performance over the past three-, five- and 10-year periods, the Medalist Ratings are forward looking over the next three- and five-year periods.

CGUS was the lone fund added to the Medalist rating list, which saw three funds cut and 16 added as prospects for potential addition in the future.

Of the three funds cut from the Medalist Ratings list, two were ETFs.

The $5.6 billion Invesco Russell 1000 Dynamic Multifactor ETF (OMFL), which gained 3.8% over the past 12 months, was summed up by Morningstar as, “competitive advantage remains unclear.”

Also cut was the $1.7 billion iShares Fallen Angels USD Bond ETF (FALN), which gained 11.7% over the past 12 months and was summed up by Morningstar as, “failed to distinguish itself.”