One of the largest holdouts to ETFs has filed for its first slate of exchange-traded products with the goal of becoming the biggest issuer by assets outside of the big three ETF providers.
Capital Group, which is the 9th largest asset manager, with more than $2.6 trillion under management, submitted the following fund prospectuses to the U.S. Securities and Exchange Commission Tuesday:
|CGCP||Capital Group Core Plus Income ETF||Current Income/U.S. Treasuries & Corporate Bonds|
|CGGO||Capital Group Global Growth Equity ETF||Global Equities/Growth|
|CGCR||Capital Group Growth ETF||Growth Equities, 74% U.S.|
|CGDV||Capital Group Dividend Value ETF||Current Income/Equity Dividends|
|CGXU||Capital Group International Focus Equity ETF||Growth Equity/ex-U.S.|
|CGUS||Capital Group Core Equity ETF||U.S. Equity|
Source: Capital Group prospectuses to SEC
The firm plans to launch these products toward the end of the first quarter of 2022 based on approval by regulators.
The Los Angeles-based Capital Group first announced plans for a slate of actively managed ETFs in January after largely resisting the wrapper and sitting on an exemptive relief request for years. It also hired former BlackRock executive Holly Framsted to lead its new business.
Capital Group originally planned to issue nontransparent ETFs with its first exemptive relief filing in 2014, and later licensed Fidelity’s methodology for semi-transparent active ETFs. While it reserves the right to use that model for future launches, these latest funds are fully transparent.
Fully Transparent Active Management
In a call with reporters Tuesday, Capital Group Head of ETFs Holly Framsted said the firm opted for a fully transparent model to provide more information for market makers seeking to provide liquidity and take advantage of custom baskets, which are currently not afforded to opaque ETFs.
“A differentiator was the ability to utilize custom baskets within the transparent structure that was not available in the semitransparent structure,” she said. “We're continuing to watch this; it's a rapidly evolving space.”
American Funds Distributors CEO Matt O’Connor said the suite of ETFs is meant to be a complement to the existing lineup of mutual funds rather than moving an existing strategy into the ETF wrapper, mirroring comments from other large mutual fund providers that have launched ETFs in recent months.
Capital Group is also monitoring the regulatory landscape around converting mutual funds into ETFs, but he said there are no plans to do so with its existing products.
“[This] is a nice opportunity for us to extend our services, versus cloning and conversion,” he said.
There are still several unknowns about this first tranche of funds. The prospectuses do not list expense ratios, and Framsted declined to offer further details on pricing. Capital Group also confirmed that it plans to give the ETFs seed funding but didn’t specify how much, a move that’s likely to give 2022’s net flows a head start toward another record-breaking year.
However, Capital Group CEO Tim Armour said his firm is aiming to position itself as the biggest ETF issuer outside of the Big Three—BlackRock, Vanguard and State Street—based on its history of fixed income asset growth.
“We see no reason Capital Group’s ETFs also can’t be a $500 billion business in the future,” he said.
The fourth largest ETF issuer is Invesco, with $362.3 billion in assets, according to FactSet data.