CGGR ETF: Growth With Less Tech, And A Winner

One of the things that worries me is concentration risk. It’s been a growth world for some time now, with Technology being the outsized winner from a momentum perspective. The result of this tech dominance on growth-oriented portfolios is concentration risk, with funds like the Russell 1000 Growth Index having a whopping 44% of the portfolio in just that one sector. What if you want a growth portfolio that does not have that much sector risk? There aren’t that many options, but the Capital Group Growth ETF (NYSEARCA:CGGR) stands out. And it’s been a surprisingly strong fund given its sector makeup.

CGGR is a relatively new entrant in the ETF marketplace. Launched in February 2022, it is an actively managed fund that primarily focuses on growth of capital. However, unlike many growth-centered funds that predominantly invest in technology companies, CGGR stands out with its well-balanced sector allocation.

The fund operates under a distinctive multi-manager approach, with each of the six portfolio managers responsible for a portion of the fund. These managers leverage their individual expertise and backgrounds in specific sectors, industries, and geographies, fostering a diversified and robust portfolio. This diversification is further enhanced by the fund’s ability to invest up to 25% of its assets in companies based outside the U.S.

Dissecting CGGR’s Holdings

CGGR’s portfolio is composed of 127 companies, primarily investing in U.S. equities. The top holdings are a mix of established companies and growth-oriented firms. Let’s take a closer look at the top five individual positions:

1. Meta Platforms (META): Formerly known as Facebook, Meta Platforms is a leading technology company specializing in social networking and virtual reality products. With the ongoing digital transformation, Meta Platforms is poised to capitalize on the growth opportunities in the tech sector.

2. Microsoft (MSFT): A global technology giant, Microsoft offers a wide range of software products, cloud services, and hardware devices. With its solid business model and continuous innovation, Microsoft remains a staple in many growth-oriented portfolios.

3. Netflix (NFLX): Netflix is a dominant player in the streaming industry, offering a variety of films and television series, including those produced in-house. With the ongoing shift from traditional TV to streaming services, Netflix stands to gain significantly.

4. Alphabet (GOOG)(GOOGL): The parent company of Google, Alphabet, is a multinational conglomerate with businesses in various sectors, including technology, life sciences, and investment. Alphabet’s diverse business model and strong financial position make it a worthy addition to any growth-oriented portfolio.

5. Tesla (TSLA): Tesla is a leading electric vehicle and clean energy company. With the growing global focus on sustainability and clean energy, Tesla is well-positioned to benefit from this trend.

I like this mix. It’s different than other passive growth portfolios I see, and the top 10 make up 37% of the portfolio – far less than other growth portfolios as well.

Sector Composition and Weightings

One of the distinguishing characteristics of CGGR is its balanced sector allocation. Unlike most growth ETFs that are heavily weighted in technology, CGGR offers a more diversified exposure across sectors. The heaviest sector is technology, followed by communication services, consumer discretionary, healthcare, and industrials. This balanced sector allocation can potentially provide a cushion against sector-specific risks and enhance portfolio stability.

A Comparative Analysis: CGGR vs. Peers

In the realm of growth ETFs, several funds are vying for investors’ attention. Some of the notable ones include the SPDR Portfolio S&P 500 Growth ETF (SPYG), the Vanguard Growth ETF (VUG), and the iShares S&P 500 Growth ETF (IVW). How does CGGR stack up against these peers?

When compared to these low-cost, passive alternatives, CGGR stands out with its multi-manager approach and active management. However, its expense ratio of 0.39% is slightly higher than its peers, which might dampen the net returns for investors. Moreover, CGGR’s short track record makes it challenging to assess its performance accurately.

In terms of sector allocation, CGGR’s less concentrated exposure to the technology sector sets it apart from its peers. This balanced sector allocation can potentially provide a cushion against sector-specific risks and enhance portfolio stability.

Performance wise, it’s a close second to VUG, and has performed better than SPYG and IVW.

The Pros and Cons of Investing in CGGR

Like any investment, investing in CGGR comes with its own set of pros and cons. On the positive side, CGGR offers a diversified growth portfolio with a less concentrated exposure to the technology sector. It also benefits from an active management approach, allowing it to adapt to changing market conditions.

However, on the flip side, CGGR’s higher expense ratio compared to its peers can potentially impact net returns. Moreover, its short track record makes it challenging to assess its performance accurately.

The Final Verdict: Is CGGR a Good Investment?

This is a promising fund with a strong active approach. Its diversified portfolio, active management approach, and balanced sector allocation make it an attractive option for investors seeking growth opportunities. However, its higher expense ratio and short track record warrant careful consideration. Worth considering in my view.