4 New Funds on Our Radar

Morningstar Prospects, a list of up-and-coming or under-the-radar investment strategies that Morningstar Manager Research thinks might be worthy of eventual full coverage, added 15 new strategies in the second half of 2021.

Here's a look at four noteworthy new strategies on the July 2022 list.

Capital Group Growth ETF CGGR

Capital Group, the parent of American Funds, ventured into unfamiliar territory when it launched five low-cost, active equity exchange-traded funds and one fixed-income ETF early this year.

CGGR adopts the firm’s characteristic multimanager approach in a fully transparent ETF wrapper. Industry and firm veteran Alan Wilson leads the strategy and works with five other managers who each run different portfolio sleeves in flexible growth styles. Some of the managers prefer traditional growth stocks, others fallen angels, and still others cyclicals.

While the portfolio typically lands in the large-growth square of the Morningstar Style Box, the individual, sleeved approach leads to a wide variety of holdings across the value-growth spectrum, which helps add balance across different market environments.

The management team has been running a similar strategy under an American Funds insurance series, with solid results since the longest-serving manager’s May 2013 start. This strategy holds only the most liquid and easily tradable stocks from the insurance series, so there are some differences between vehicles. The active-equity ETF’s 0.39% expense ratio makes it a solid option and it should be more tax-efficient than a similar mutual fund counterpart.

iShares MSCI Global Impact ETF SDG

SDG takes a more ESG-intentional approach than most sustainable funds. It tracks the MSCI ACWI Sustainable Impact Index, which includes companies that generate at least 50% of their sales from one or more MSCI Sustainable Impact Metrics categories–a group of 13 product or service categories that address at least one of the major social and environmental challenges as defined, for example, by the United Nations Sustainable Development Goals.

The index then screens out companies with business controversies and MSCI ESG Ratings below BBB. It weights eligible securities by adjusting market cap based on sustainable impact dollar sales, giving the portfolio a higher tilt toward firms with the highest sustainable impact sales. Sector weight and issuer weight caps promote diversification and limit concentration risk.

The fund takes a healthy dose of active risk to serve up its sustainable impact portfolio, which has paid off: The fund outperformed the MSCI All Country World Index from its inception in 2016 through June 2022.

Invesco Russell 1000 Dynamic Multifactor ETF OMFL

OMFL takes a rules-based approach to dynamically weight factor exposure depending on economic cycles and market conditions. The index considers leading economic and market sentiment indicators to signal whether the economy is in one of four regimes: recovery, expansion, slowdown, or contraction. Based on the economic regime, the index then focuses on two or three of five factors: small size, value, momentum, low volatility, and quality. For example, the index emphasizes small size, value, and momentum factors in growth periods and low volatility and quality during contractions.

This dynamic strategy leads to an ever-changing portfolio resulting in high annual portfolio turnover. The portfolio has bounced between mid-blend, mid-value, and large-blend on the style box. It currently holds more than 700 companies with much lower concentration risk than the Russell 1000 Index. It invests 7% of its assets in its top 10 holdings versus 25% for the index.

This strategy’s performance has bested the Russell 1000 Index and the large-blend Morningstar Category average so far. It landed in the top quartile each year since its 2017 inception and currently lost less than over half its peers through June 2022.

JPMorgan Ultra-Short Income ETF JPST

At $18.5 billion in assets, JPST has grown into one of the ultrashort bond category’s largest actively managed strategies over its short five-year history. It buys investment-grade debt with the aim of beating prime money market returns over a cycle, but with a laser focus on liquidity management. The managers here favor higher-yielding corporate credit and securitized bonds over U.S. Treasuries and maintain allocations to cash and other short-dated, highly liquid securities. The team regularly assesses market and liquidity conditions to position the portfolio across sectors, yield curve, and duration (a measure of interest rate sensitivity). Its short duration, typically between six and 12 months, limits interest-rate volatility. Investors can use this ETF flexibly as either an "enhanced cash" option or a tactical strategy to manage overall interest-rate risk.

The fund leverages the deep resources and liquidity expertise of JPMorgan’s Global Liquidity franchise. A team of four experienced portfolio managers collaborate on fund positioning, but James McNerny, a 23-year JPMorgan veteran, leads this effort. More than 20 investment-grade credit and securitized analysts, as well as broader firm resources, support the strategy.

Performance has been strong. From its 2017 inception through May 2022, the fund’s 1.7% annualized gain outpaced 85% of its rivals. Thanks to holding up relatively well during stress periods, such as the coronavirus-driven turmoil, its risk-adjusted results have been superior, too. For the year to date through late June 2022, this strategy has outperformed 77% of rivals.