Active ETFs Take on International Investing

Scott Burns: Active ETFs take on international investing. Hi there. I'm Scott Burns, director of ETF analysis with Morningstar. I am joined today by a couple of portfolio managers for WCM Investment Management Group, Kurt Winrich and Mike Trigg. Gentlemen, thanks for joining me.

Kurt Winrich: Thanks for having us.

Burns: So, you've just recently launched the WCM Bony-Mellon ETF Focus Growth ADR, so that is a mouthful, like all ETF titles. The ticker on that is going to be AADR. Tell us a little bit about this ETF and what is going on with international and large focus.

Winrich: Well, first of all, Scott, the focus growth ADR ETF is a high quality large cap growth fund in the international space, the non-U.S. universe. And so that actually makes it fairly unique in our view, because when you look into the international space, especially when you look at indexes, you are going to find that most of them are dominated by materials, and natural resources, and financials. Not typically going to have much weight at all in technology, healthcare, those kinds of traditional growth areas. And this portfolio focuses on that, and I think that is pretty unique.

Burns: Right. Just so our watchers know, we are talking about the MSCI, EAFE.

Winrich: Yeah, that's a good example. The All Country World Index, same kind of characteristic. Whether you include emerging markets or not, you're going to be dominated by natural resources, financials. And technology, healthcare, consumer businesses are small portions of that.

Burns: So, we've got three things going on. We've got large cap, we've got international, and we've got growth. And I guess a fourth, if we want, is a focus portfolio. Why don't you talk a little bit about your investment process and how you bring all those factors together to come up with your portfolio holdings?

Winrich: Well, we're strong believers in the idea that concentration -- a concentrated portfolio, in our view that means 20 to 30 names, is the way that you actually outdo the indexes over the long run. We like to say if you're going to beat the index, you've got to be different than the index. And yet you worry sometimes about risk in concentrated portfolios. And our argument is always that if you construct it well, and if you pay attention to getting the best companies in there, you actually can have lower risks than a lot of things that are dependent on commodity prices or whatever.

So that's an important factor in how we put this portfolio together. It's high quality companies that are characterized by four big things that we think are important. That they have a great tailwind behind them, they are in a business that has real growth ahead of them for years.

An example that we think of around the world is the idea of the emerging middle class. That's why we think consumer businesses in the emerging markets, even in the developed international markets, are pretty exciting, because the middle class is growing and there's more consumption.

It's also important that these businesses have a great moat. We like the same term that Morningstar likes, the idea of a competitive advantage that's not only sustainable, but it's actually getting stronger. So we're looking for people with companies with great distribution and things like that.

And then it's important for us, and this is something that we specialize in I think, is the idea that a company has to have a culture that attracts and keeps the best people, because that's how you maintain that competitive advantage around the world.

Finally, we care what we pay for it. We are a growth manager that cares about valuation. We like to say, "Great companies, fair prices."

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