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It’s increasingly clear that exchange traded funds aren’t the threat to active management they were previously believed to be. If anything, the ETF wrapper has provided a much need rejuvenation of active management. After all, it really wasn’t active management advisors and investors took issue with.
Rather, it was the structure of active mutual funds, which includes trading just once a day and high potential for costly capital gains events. ETFs solve those problems and that’s a big reason why active ETFs are on the rise.
Another catalyst behind the ascent of active ETFs is familiarity. As in smart issuers have either converted successful mutual funds to the ETF wrapper or introduced ETF equivalents of established mutual funds. Take the case of the Jensen Quality Growth ETF (JGRW), which is the ETF counterpart to the Jensen Quality Growth (JENSX).
JENSX is a traditional mutual fund and one with a track record spanning three decades, so there could be a receptive audience for the ETF counterpart, which debuted on Aug. 13 and already has $21.3 million in assets under management.
JGRW Heritage Matters
As is the case with active mutual funds, bonds or equities, people and process matter when it comes to active ETFs. For advisors considering JGRW, the good news is that the new ETF checks those boxes and that’s true even with CIO Eric Schoenstein preparing to leave the firm next March. He announced his retirement in March of this year, giving the firm ample time to prepare for his departure.
“Jensen as a firm handles transitions well, telegraphing them early and hiring in advance of need. In the last year, it added two analysts to this eight-member team that still averages 24 years of industry and 13 years of firm experience, not counting Schoenstein,” notes Morningstar analyst Dan Culloton.
Getting into the nitty gritty of JGRW, the ETF mirrors the fundamentally driven approach of its mutual fund relative, which is a high-conviction strategy.
“The essentials of its bottom-up, high-conviction process remain, though. It won’t consider investing in a company unless it has posted returns on equity of at least 15% for 10 straight years,” adds Culloton. “That screen gives the team a high-quality pond of businesses in which to fish. The managers run whatever they reel in from that pool through dozens of hours of fundamental research to arrive at a couple of dozen steady growers trading at reasonable valuations.”
JGRW currently has just 28 holdings and the top 10 include Microsoft (NASDAQ: MSFT), Apple (NASDAQ: AAPL) and Google parent Alphabet (NASDAQ: GOOGL).
What to Expect from JGRW
Forecasting future performance for any new ETF is difficult and as the old the saying goes, past performance isn’t a guarantee of future returns.
With JGRW, the good news is that, as noted above, its mutual fund counterpart has a 30-year track record, which could be instructive regarding the ETF’s long-term potential.
“Over a multiyear holding period, however, it has posted decent absolute and risk-adjusted results versus its typical large-blend and large-growth Morningstar Category peers and the S&P 500, Russell 1000, and Russell 1000 Growth indexes,” concludes Culloton. “From the 2004 start of senior manager Schoenstein’s tenure through Aug. 31, 2024, the 9.7% gain of the mutual fund’s I share class slightly lagged the S&P 500′s 10.3% and beat the large-blend category’s 8.8%, while roughly matching the large-growth category’s results. It lagged the Russell 1000 Growth’s 10.4% return but sustained less volatility as measured by standard deviation of returns.”
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