Joining us for more Holly Framsted, Head of the Product Group at Capital Group for this week's ETF report brought to you by Pigo. Now, this study was about mutual funds, Holly, but as you know, there has been um an explosion in active ETFs as well. I know you guys at Capital Group, um that you have some of those. So I'm curious how you think about the strategy around active ETFs and how you do try to outperform the benchmarks, which is tough to do even for people who've been doing it for a long time.

Well, active management certainly can be challenging and at Capital Group we have a long, almost 100-year track record of delivering excess returns for our clients and importantly delivering so with a modicum of downside protection. And so when I think about the power of active ETFs, I think really seeing two things play out in the industry right now. First is the the benefit of the ETF as a vehicle, being a tax efficient wrapper, it has long been adopted by financial advisors who previously were

forced to choose passive when they wanted the ETF as a as a tax efficient way to invest on behalf of their clients. So, now that we are seeing active management available in that vehicle, we're seeing adoption increase tremendously. In fact, active ETFs have compounded annually in assets under management at more than 50% in the last approximately five years. And so what that tells me is that now that advisors have choice, they are increasingly leaning toward active management. It's not surprising given

the market concentration that we have seen. We've seen levels of concentration in the market that that we have not right now, that we have not seen since the 1960s. And so in environments like this, what we find is that financial advisors are increasingly focused on risk, downside protection, and they rely tremendously on active managers to help them in times of potential regime change.

And and what do you, how do you think about offering active ETFs versus using passive ETFs actively? In other words, you know, having sort of a menu of thematics and other things to kind of um, make a portfolio in that way.

Well, one of the biggest trends we've seen in the marketplace is that financial advisors who are in the business of growing their businesses are increasingly leaning toward model portfolios as a mechanism for delivering that growth. So they are choosing to allow an asset manager um or a model provider to be the investor for them so that they can spend their time focused on client acquisition, certainly from a business perspective, but even more important impactfully client servicing. They can spend their time talking with

their clients about their trust structures and the vacations they want to take, and if they have enough money saved for their children's education, and not focused on tactically trading around market moves. This is where we're seeing um, you know, 40% of the highest growth financial advisors are using model portfolios and active managers and active ETFs as component pieces to that model can implement some of those tactical changes on behalf of the FA so that they don't have to. So we really think focusing on being active at the

core enables the individuals closest to the investment decisions to be making um making those more tactical moves in the market for their clients.

And Holly, I'm curious besides just sort of passive versus active or some of these other things, where are you guys seeing the most interest and the most flows um into the ETFs that you're managing?

Well, I think this really speaks to the conversation we've been having. Um, you know, markets have been highly concentrated. They've been driven predominantly by an AI dominant theme. If you look at the S&P 500 today, the top 10 companies in the S&P represent 40% of that index's returns. And if you break that down to semiconductors alone, that's 20% of the overall index. And this concentration isn't just um a US market phenomenon. In fact, if you look at emerging markets, the top three companies

in the MSCI emerging market index right now represent 30% of those market returns. And so in an environment like this, if all investors were equally simply performance chasing, you would expect that, you know, growth and AI as a theme would be where all of our clients are allocating money. And in fact, what we see is tremendous balance in the adoption of our ETFs since we launched. CGDV, our dividend value ETF and CGGR, our growth equity ETF are both two US focused large cap equity exposures

and yet they sit on kind of opposite ends of the the investing spectrum and we're seeing them adopted in all adopted in almost equal parts in financial advisor portfolios. and in fact dividend value has tremendous results despite the fact that you might think it's leaning into different themes. So what that tells me is the FA community recognizes that they need balance in their portfolio and despite all of the market rhetoric are continuing to seek core exposures that can provide diversification for their clients.

Um, lastly, I'm I'm curious with the incredible ETF boom that we have seen this year just with record assets flowing in. Um what happens when there's a downturn, right? Because we were in this huge bull market. We've we've gotten little spurts of corrections, especially in certain areas like semiconductors. and I'm just curious what you see at periods like that that might help you look ahead to if we had a bigger downturn, how that would sort of play out through the ETF market.

Well, certainly ETFs are like any other fund. Investors can choose to buy or sell depending on um their perspective and how invested they want to remain in the market. In our conversations with clients, we are very focused on the long-term. Um, we believe that there are objectives that most clients are saving and investing their money to achieve and whether the markets are up or down over the long term, um, those objectives and those needs don't change. And so we really focus on staying invested and that

it's about the amount of time you spend in the market, not how effectively you time the market, that over the long run ends up being the most impactful driver of whether you can achieve those outcomes. And so while I can't predict investor behavior in times of market stress, what I can say is that investors ourselves, we believe often times that remaining invested and taking in the new information, but focusing on that long-term objective and the fact that markets over time tend to compound and add value for clients

is is critical when you think about that long run trajectory of your investment.

Holly, thanks so much. Really appreciate it.