Investors seeking more exposure to mega caps through an exchange-traded fund (ETF) have a new product to weigh up.
On Thursday, December 7, CastleArk, a Chicago-based fund manager, launched its maiden ETF, the CastleArk Large Growth ETF, on the NYSE Arca under the ticker “CARK.”
CARK targets 25-30 of the largest and most successful growth publicly-listed companies. The management team seeks firms with enduring business models that keep generating high returns on capital. The fund focuses on growth companies that have a sustainable competitive advantage – often referred to as a “moat.”
“We’ve had a 20-plus year history as one of the top large-cap growth managers,” CastleArk Co-Founder and Portfolio Manager Jerome Castellini told VettaFi. “But it’s been confined to the institutional separately managed account part of our business.”
“So, we developed this ETF and are going to be a direct participant in this market,” Castellini added.
CastleArk sees the concentration of the sector through the rise of the “Magnificent Seven” stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) as a risky scenario for passive investors.
“It’s gotten to the point where one slip can affect the index dramatically,” says Castellini.
“We truly believe that the market needs an alternative to indexed large-cap holdings… with the size of the Mag 7, the need to have a conscious, research-driven investment process has never been greater,” he adds.
CARK is following a broader trend within the ETF space.
The Active Edge?
Active ETFs – a sort of fusion between passive index trackers and mutual funds – have been in vogue this year.
Morningstar reports that actively managed ETFs grew 14 percent in the first six months of 2023. Passive ETFs inched along a mere three percent.
Wall Street heavy hitters are swinging hard into this ETF category. JPMorgan, in particular, is promoting the trend. The bank’s leading JPMorgan Equity Premium Income (JEPI) is already worth $30 billion in assets under management, and it has transitioned more of its mutual funds to ETF vehicles this year.
Like traditional mutual funds, active ETFs have managers who fine-tune their allocation to try and beat the market. Yet they come served in an ETF wrapper and are typically cheaper, more liquid, and accessible, which makes them appealing to retail investors.
“There’s more comfort with having active ETFs in your portfolio,” Matthew Bartolini, head researcher at SSGA, told the Financial Times last month. “There’s more of them, there is more choice and there are far more products that have an identifiable track record.”
What’s more, active strategies are gaining an edge. A total of 57 percent of actively managed funds and ETFs delivered superior returns compared to passive counterparts from July 2022 to June 2023. as per Morningstar data. This is a significant step up in performance, considering only 43 percent of active strategies outshone passive for the 2022 calendar year.
Investors will have to keep watch to see if the active field can keep its current momentum into the new year.
CARK charges an annual expense ratio of 54 basis points.
This article was produced and syndicated by Wealth of Geeks.