Let's dig into exchange-traded fund name Principal Asset Management, and its newest fund.
Principal Asset is a roughly $280 billion investment manager, according to its most recently filed Form ADV. The company has been active in the U.S. ETF marketplace since 2015. The U.S. ETF business recently grew to 15 funds and $2.7 billion in assets under management (AUM) with the July 13 launch of the Principal Focused Blue Chip ETF (BCHP) . Let's see what this fund is all about.
ANTs Go Marching
As $1.5 billion of that ETF's AUM total is invested in the "Always Faithfully" tickered Principal U.S Mega Cap ETF (USMC) , it's not too much of a surprise that this fund is also focused on large-cap names. There are a couple of differences in the approach. The first is that USMC starts with the S&P 500 Index for USMC and BCHP is based on the Russell 1000 Growth Index. The second is that USMC runs on regular daily full portfolio disclosure rules, while BCHP runs on one of the available Active Non-Transparent (ANT) frameworks.
As the fund is actively managed, the summary prospectus is the best (only, really) place to learn about the security selection criteria. As mentioned, analysts start with the companies in the Russell 1000 Growth Index. From there, analysts screen for Blue Chip companies, which in their view "are well established in their industries and have the potential for growth of capital and an expectation for above average earnings." The prospectus goes on to invoke the time-honored active manager language of using "a bottom-up, fundamental process, focusing on, among other things, competitive position, company management and culture, free cash flow, and risk." In other words, the secret sauce stays secret.
In addition to providing limited insight into the security selection process, the fund employs a strategy by which it doesn't disclose portfolio holdings except by regulatory requirement. That requirement is spelled out as "the thirteenth business day of the following month," which makes me wonder if June's holdings were released on July 19, or if they will be released on August 17. Like other semi-transparent approaches, on a day-to-day basis, market makers and other participants are provided with a "Tracking Basket," which is meant to represent the strategy in action. What is different about this approach, and what I like about it, is that Principal publishes an overlap metric on their website. On July 19, the tracking basket weight overlap for BCHP was 96.49%. The provided tracking basket lists 22 familiar names like Alphabet (GOOG) , (GOOGL) , Amazon (AMZN) , Microsoft (MSFT) , Mastercard (MA) , Visa V, and Adobe ADBE. As you can tell, it doesn't seem like the fund is doing anything too radical, but considering the fund is Blue Chip focused this shouldn't be too surprising.
Wrap It Up
Once again, as with any new active fund, I can't make an investment recommendation without any history. That said, if you think we are, to quote a recent president, "about to be going through some things" then seeking relative safety in well-positioned, fiscally strong companies isn't the worst idea I can think of.