Legg Mason is rolling out an actively managed equity ETF that is subadvised by its affiliate ClearBridge Investments. The ClearBridge All Cap Growth ETF (CACG) can invest in stocks across the different size segments and will look to target those with the potential to achieve above-average earnings and cash growth over the long term, according to the prospectus.
The fund comes with an expense ratio of 0.53% and is listed on the Nasdaq stock exchange.
“We wanted to stick to our core competency, which is fundamental-based stockpicking. That’s where ClearBridge has traction and brand recognition in the marketplace, whether it’s the institutional marketplace or retail marketplace,” said Vinay Nadkarni, managing director and head of ClearBridge’s portfolio specialist team.
He added that the firm’s competitive advantage lies in its diversified stockpicking that avoids taking on large amounts of factor risk.
CACG’s research-driven bottom-up investment approach will look to find stocks with inefficient prices as well as strong fundamentals, wide moats and incentive-driven management teams. ClearBridge’s sector analysts will work with CACG’s managers to identify companies with growth potential, the prospectus indicated.
Core Satellite In One Product
Nadkarni notes that CACG offers core-satellite exposure in one vehicle. The portfolio includes a core “anchor of stable select large-cap names that minimizes factor risk,” Nadkarni said, as well as satellite investments that offer “alpha generated by idiosyncratic stockpicking across size and sectors.”
It’s in that satellite portion of the portfolio that ClearBridge will seek to differentiate itself from the marketplace. For example, Nadkarni says that the portfolio is currently overweight health care, which has been shunned by many due to fears of regulation, and the fund also doesn’t own any integrated energy or big pharma at the moment. It's also currently underweight on megacap technology companies.
However, CACG is not itself designed to represent an investor’s entire U.S. exposure.
“From a fit perspective, we think it’s a really good complement solution, rather than something where people have to disintermediate their exiting holdings,” Nadkarni said in reference to investors who already own portfolios of ETFs.
“We always are a puzzle piece, not an encompassing solution,” he said of ClearBridge’s products.
The strategy has been available for roughly 20 years at ClearBridge as a wrap account, and its four managers have been at ClearBridge for the same amount of time. Bringing the strategy to market in an ETF wrapper made sense, according to Nadkarni, because there were very few products occupying a similar niche in the universe of ETFs.
“This is still relatively greenfield space. With this strategy in an ETF wrapper, we’re going to be at the vanguard at the true fundamental active ETF market,” Nadkarni said. “The whole idea with active management is to play less crowded games, whether that’s how you invest or how you market.”
The closest competitor in the actively managed U.S. equity ETF space appears to be the Davis Select U.S. Equity ETF (DUSA), which has $35 million in assets under management and comes with an expense ratio of 0.60%. DUSA similarly focuses on large-cap stocks, but can invest across the market-cap spectrum at the manager’s discretion. However, DUSA has more of a focus on value than growth.
Contact Heather Bell at [email protected].