These Three Funds Are the Shohei Otani’s of ETF Land

Baseball fans probably know of the hulking, world-class athlete Shohei Ohtani. He is the first player in decades to excel as both a pitcher and batter. The last one of note was a guy name Babe Ruth, who in the season that ran a century ago batted .378 and hit 46 home runs. We digress.

Ohtani, who now plays for the Los Angeles Dodgers, can't pitch this season due to an injury, so he’s again tearing up the league with his bat. He began in Major League Baseball in 2018, after a successful start in his native Japan, and was named Rookie of the Year. A different, soon-to-be Hall of Fame player from Japan, Ichiro Suzuki, also came over after starring in Japan, and was the 2001 Rookie of the Year.

That's the windup, and here's the pitch. We're drawing an analogy.

While on the surface the start of this piece as about baseball, they were at the same time about ETFs and investing. What those star athletes did in earning “rookie” awards when they weren't truly first year pros, is akin to some high performers of the ETF world. 

New, and Not Quite Rookie ETFs

That’s because some very strong performers over the past year might appear to be new funds based on their inception dates. However, their firms and strategies are far from being rookies.

For instance, the $89 million PGIM Jennison Focused Growth ETF (PJFG) can’t be from some upstart new money manager. I’ve been watching their commercials on television for years. Ah, but those were for their mutual funds.  

This is one of a series of funds from PGIM and others that simply took their successful formulas over to the ETF structure, and for good reason. At the risk of mixing sports analogies, we see where the puck is going: Dollars flowing out of traditional mutual funds and into ETFs.  

PJFG could qualify for a rookie award, given its 43% advance since its inception in ETF form on December 12, 2022. That’s about a 2.5% gain per month on average, not a bad start. That success is in part due to its mandate to run a concentrated portfolio, with 20 to 50 stocks, and to look globally for opportunities. Even in Japan, where Major League Baseball’s top rookies sometimes originate.

The Pinnacle Focused Opportunities ETF (FCUS) is a $31 million ETF that has rocketed to an 18.5% gain to start 2024, after debuting in the final days of 2022. This ETF tactically allocates equities and US Treasuries based on a set of proprietary model signals. Its equity allocation is either set at 100%, 75% or 50%, and the stock portion is about 30 names.  

And, mutual fund veteran Calvert has the Calvert US Select Equity ETF (CVSE), a $29 million fund that started in January 2023. It has gained 27% since that starting date and is up 10.5% this year. The fund’s stock selection is large cap focused, and ESG factors weigh into the investment mandate.  

Get the word out. They're coming. And this time, I’m not talking about more superstar baseball players from Japan (though that is also occurring). Mutual fund companies have been doing the slow dance toward having ETF equivalents for years, but that pace is accelerating. Many are on the leading edge of the surge in active ETF listings.  

But this won’t be a quiet story for too long. So expect some future ETF asset leaders to come from the increasing list of stars from that other part of the world, mutual funds, who joined the ranks of the ETF structure.