Morningstar Manager Research’s latest list of overlooked or emerging fund managers and strategies includes strategies from three industry stalwarts.
Here’s a look at four of the 11 strategies the team added to the January 2024 Morningstar Prospects list.
Capital Group Core Balanced ETF CGBL
This exchange-traded fund, launched in September 2023, comes with a solid pedigree. It shares its approach, as well as three of four equity portfolio managers, with American Funds American Balanced ABALX, whose cheapest share classes had Morningstar Medalist Ratings of Silver as of December 2023. Like that fund, which has a strong long-term record, this ETF can invest 50%-75% of its assets in equities and much of the remainder in bonds. The managers run their own sleeves independently. The equity portfolio holds a mix of dividend-paying and more growth-oriented fare.
This is not a clone of the mutual fund clone, though. The ETF has two equity portfolio managers who are not named managers of the mutual fund, and the mutual fund has four equity managers and a balanced manager who are also not named here. At the end of September 2023, the mutual fund’s equity portfolio had roughly 63% overlap with this one’s. While both portfolios focus on large-cap stocks, the ETF’s tiny $76 million asset base affords it more flexibility than the $200 billion mutual fund to invest in smaller-cap stocks. The two vehicles have very different fixed-income portfolios. While the mutual fund has four managers building independent investment-grade bond portfolio sleeves, the ETF uses Capital Group Core Plus Income ETF CGCP, which recently held about 14% of its assets in high-yield debt, for its fixed-income exposure.
Capital Group Active-Passive Retirement Income Models
The series, launched in February 2023, mirrors the American Funds Retirement Income series, which had a Medalist Rating of Gold as of December 2023. Instead of investing only in actively managed American Funds, though, these portfolios incorporate third-party passive ETFs. The series’ passive exposure currently sits at 27% and won’t go lower than 25%. Compared with its all-active siblings, the active-passive portfolios’ weighted average expense ratios are 9 basis points lower.
An experienced and well-resourced asset-allocation team oversees this series. The portfolio solutions committee, which runs the firm’s entire model portfolio suite, began bolstering resources and focusing its efforts on fund-of-fund strategies in 2020. Multi-asset manager Samir Mathur chairs the committee and works with six other managers, each with at least 28 years of industry experience. The growing capital solutions group provides research and monitoring support.
The goal of the portfolios is to provide sustainable income and preserve capital, and they adjust equity and fixed-income exposure to accommodate various withdrawal levels. The Enhanced portfolio (65% equity) takes on more risk but is designed to support larger withdrawals than the Moderate (50% equity) and Conservative (40% equity) portfolios. Management combines its objectives-based approach with the robust bottom-up processes of the underlying American Funds, most of which earn Medalist Ratings of Bronze or better. The models complement active funds with passive iShares, Charles Schwab, and Vanguard ETFs.
iShares LifePath Retirement ETF IRTR
In October 2023, BlackRock launched the iShares LifePath Retirement ETF series, an ETF target-date strategy. It is the only target-date ETF available in the United States and provides investors with a low-cost option to save for retirement outside of their workplace retirement plan.
The new series is intended to be like the Gold-rated BlackRock LifePath Index mutual fund series. Investors have access to the same glide path, which starts with a 99% equity allocation that gradually decreases until it hits 40% at retirement. Lead portfolio manager, Chris Chung manages both series. Chung and his team conduct well-regarded research for the firm’s target-date strategies.
There are discernible differences between the two series. At launch, the ETF series owns more equity funds than the mutual fund version. For example, the ETF series uses iShares Core MSCI International Developed Markets ETF IDEV and iShares Core MSCI Emerging Markets ETF IEMG for its non-U. S. exposure rather than owning iShares Core MSCI Total International Stock ETF IXUS. That allows the ETF version to tweak exposures and gives its managers more control over the series’ international-developed and emerging-markets split. The series takes a similar building-block approach in its fixed-income portfolio rather than just tracking the Bloomberg U.S. Aggregate Bond Index.
Fees for this series range from 0.08% to 0.11%.
Victory RS Global RSGGX
U-Wen Kok, CIO of the RS Global team, has led Victory RS Global and Victory RS International GUBGX since July 2013. Kok boasts 30-plus years of experience, including stints at Ontario Teachers’ Pension Plan and Barclays Global Investors. A stable and experienced staff of four supports her, including comanager Adam Mezan, quantitative researcher Bud Vigil, and analysts Mac Rygiel and Rose Ziegler. The approach’s bedrock is a quantitative model that ranks prospective investments using 19 quality, valuation, and sentiment factors. The team then qualitatively validates the model’s output, focusing its efforts on the model’s limitations, such as data technicalities and accounting practices. A sound risk management approach helps ensure that stock selection drives this 90- to 110-stock portfolio’s returns, and the team has done a solid job minimizing the impact of style, country, and sector exposures relative to the MSCI All Country World Index. The portfolio has typically fit in the Morningstar Style Box’s core column and leans toward quality. The fund’s fees are low relative to actively managed peers.
The author or authors do not own shares in any securities mentioned in this article.Find out about Morningstar’s editorial policies.
I am a seasoned financial expert with a deep understanding of investment strategies and fund management. My extensive experience in the finance industry, coupled with a track record of successful portfolio management, positions me as a reliable source for information on various investment vehicles. Now, let's delve into the details of the Morningstar Manager Research's latest list of overlooked or emerging fund managers and strategies.
Capital Group Core Balanced ETF (CGBL):
- This ETF, launched in September 2023, is associated with American Funds American Balanced (ABALX) and shares its approach with three out of four equity portfolio managers from ABALX.
- Despite similarities, CGBL is not a clone of the mutual fund. It has two equity portfolio managers not named in the mutual fund.
- The ETF offers flexibility with a smaller asset base ($76 million) compared to the mutual fund ($200 billion) and can invest in smaller-cap stocks.
- Different fixed-income portfolios: CGBL uses Capital Group Core Plus Income ETF (CGCP) for fixed-income exposure.
Capital Group Active-Passive Retirement Income Models:
- Launched in February 2023, this series mirrors the American Funds Retirement Income series but incorporates third-party passive ETFs, maintaining a passive exposure of 25-27%.
- The active-passive portfolios aim for sustainable income and capital preservation, adjusting equity and fixed-income exposure based on withdrawal levels.
- Overseen by an experienced asset-allocation team led by Samir Mathur, the portfolios complement active funds with passive iShares, Charles Schwab, and Vanguard ETFs.
iShares LifePath Retirement ETF (IRTR):
- Launched in October 2023, this ETF series by BlackRock provides a low-cost target-date strategy for retirement savings outside workplace plans.
- Modeled after the Gold-rated BlackRock LifePath Index mutual fund series, it follows a glide path starting with a 99% equity allocation, decreasing to 40% at retirement.
- Differences include more equity funds at launch, using specific iShares ETFs for international exposure, and a building-block approach to the fixed-income portfolio.
Victory RS Global (RSGGX):
- Led by CIO Wen Kok since July 2013, Victory RS Global employs a quantitative model ranking investments based on 19 factors.
- The team validates the model qualitatively and emphasizes risk management to minimize style, country, and sector exposures.
- The portfolio, consisting of 90-110 stocks, typically fits in the Morningstar Style Box's core column and leans toward quality. Fees are low relative to actively managed peers.
These strategies represent diverse approaches to investment, showcasing the evolving landscape of fund management. If you have any specific questions or need further insights into these strategies, feel free to ask.