Capital Group Enters Small/Midcap ETF Space with CGMM
A New Player in the Small/Midcap Arena
New York-based Capital Group has made a significant move into the small/midcap exchange-traded fund (ETF) space with the launch of the Capital Group U.S. Small and Mid Cap ETF (CGMM). This marks the company’s first foray into this area, and it’s an actively managed fund that will be led by principal investment officer Roz Hongsaranagon, along with three other experienced managers.
A Diversified Portfolio with a Twist
The CGMM fund boasts an expense ratio of 0.51% annually and will be benchmarked against the Russell 2500 index. What sets it apart is its unique approach to portfolio management. Unlike other funds, CGMM’s managers and analysts will select their top holdings, which will be balanced between small and midcaps. Additionally, the company will maintain market cap limits on holdings, selling them once they outgrow the midcap label.
A Strategic Move in a Competitive Landscape
Capital Group’s entry into the small/midcap ETF space puts it in direct competition with established players like American Century Investors (AVUV) and Dimensional Holdings (DFAS). However, the company’s structure and approach aim to differentiate it from the competition. CGMM is designed to fit a core-to-core-growth strategy, offering a balanced blend of small and midcaps.
Timing is Everything, But Long-Term Focus is Key
The smallcap space has underperformed large caps in recent years, making it a challenging time to launch a new fund. However, Capital Group’s focus on the long term means it’s not deterred by short-term market fluctuations. According to Scott Davis, head of ETFs for Capital Group, “We really do come to market with strategies where we know we can offer something durable and something that will benefit clients.”
A Growing Presence in the ETF Market
With the launch of CGMM, Capital Group has now amassed $50 billion in assets under management (AUM) and 22 ETFs since its initial foray into the ETF ecosystem three years ago. The company claims to be the fifth-largest issuer of active ETFs, and its new fund completes its suite of core building block ETFs. This paves the way for the launch of its all-Capital Group ETF models, slated for March.
A New Option for Advisors and Investors
CGMM offers advisors and investors a new option in the small/midcap ETF space, one that’s designed to provide a balanced and durable strategy for the long term. With its unique approach to portfolio management and focus on the long term, Capital Group’s new fund is poised to make a significant impact in the market.
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