Today Motley Fool Asset Management has rolled out its second ETF, an actively managed small-cap growth fund. The Motley Fool Small-Cap Growth ETF (MFMS) tends to focus on high-quality companies that have strong competitive advantages, reasonable levels of leverage and strong free cash flows, according to the prospectus.
The fund comes with an expense ratio of 0.85% and lists on Cboe Global Markets, the parent company of ETF.com.
Motley Fool Asset Management rolled out its first ETF early this year. The Motley Fool 100 Index ETF (TMFC) is a passively managed fund that invests in the top 100 U.S. companies recommended by the Motley Fool IQ Database.
The Motley Fool is best known as a website devoted to providing individual investors with the information they need to invest more effectively. TMFC has $142.2 million in assets under management and carries a 0.50% expense ratio.
“[MFMS is] going to be managed with the same long-term buy-and-hold investment philosophy that the Motley Fool espouses,” said Portfolio Manager Charles Travers. “We are specifically focused on small companies that we believe are at the earliest stages of a long-term growth trajectory.”
MFMS’ underlying investment approach evaluates companies based on their management, culture and incentives; the economics of their business and its long-term feasibility; and their competitive advantages and the durability of those advantages. The ETF will typically hold 30 or more stock positions, the document says.
“We believe the small-caps are a part of the market where independent investment research can uncover good investment ideas,” Travers noted. “That’s another way of saying we believe it’s a less efficient part of the market.”
“We believe by doing our homework and focusing on a relatively small number of high-conviction ideas, we can deliver attractive returns for our shareholders,” he added.
According to Travers, the portfolio management team likes to get to know management of the companies they’re targeting, particularly how they’re going to attract, promote and retain talent without losing the corporate identity that drove their initial success.
While there are nearly a dozen small-cap growth U.S. ETFs currently trading—the largest of which is the iShares Russell 2000 Growth ETF (IWO) at $9 billion in assets under management—there are no actively managed funds in the space.
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