Nick Elward Discusses Active ETFs, Value Opportunities at Exchange

VettaFi’s ongoing Exchange conference has brought advisors and financial experts together to discuss some of the best strategies to navigate the market. At the start of the conference, Staff Writer Nick Wodeshick sat down with Nick Elward, senior vice president and head of institutional product and ETFs at Natixis, to discuss international investing, active management, and more. 

Nick Wodeshick: Let’s start by looking at where the U.S. market currently sits. You know, all the inflation worries and recent sell offs have sent many investors back to the drawing board when it comes to building their portfolios. What strategies do you think they should be taking a look at right now?

Nick Elward: The last month to six weeks has been somewhat unnerving. It all stems from, of course, the tariff discussions that President Trump has brought forth. Initially, a lot of investors thought it was mostly posturing, part of his long-held tactic series of trying to use negotiating power to get what he wants in terms of a better deal.

As time has passed, it seems like the probability of something actually sticking…A painful tariff that can affect both U.S. investors and also those who are on the other side of the tariffed countries looks real. And with April 2 fast-approaching, the key date for when the tariffs could be enacted, the concern is particularly acute.

What we’ve also seen is U.S. equity markets, in particular large growth, getting hammered, in terms of performance. But at the same time, we’ve seen opportunities elsewhere. International markets — Germany, as an example, is up around 15% in their equity market. Fixed income markets have remained strong as well.

Even our US Value ETF, (OAKM), is up around 3.5% so far this year. There is some shock factor in terms of what we’re seeing in the news with politics and then also large growth stocks, particularly those Mag Seven tech stocks, but there’s been opportunity elsewhere

So, your question, what should investors do? What should they be investing in? I know it’s a tried and true system, but they should keep doing what they’ve always been doing. Changing anything that they’ve been doing previously now, unless they were doing the wrong things before, is not advised.

So, sticking with appropriate asset allocation in terms of U.S./non-U.S. equity, all the fixed income, whether it be duration or different credit levels, that’s what they should do. That’s the right recipe. Taking any rash action now as a result of these items in the news, as I look back to my 30 years working investments, it would have been a bad move for me to do that. And of course, I’d extrapolate that upon our investors.

Wodeshick: I was actually going to ask about the Oakmark U.S. Equity ETF, OAKM, because it has been performing so well this year. Why do you think it’s positioned well to take advantage of where the market sentiment is at?

Elward: Bill Nygren and his team, they’ve always been a team that is not infatuated by the high-growth stocks that might also be higher in terms of valuation, which have been driving the market the last two years. Of course, 2022 was a negative year for equity markets, but before that, large growth also drove the market.

So, the OAKM team have always been investors that look back to the Warren Buffett style of investing. And with concerns now about valuations, about high growth, the style that Bill Nygren’s team at OAKM have deployed is coming back into fashion, so to speak. For any investor that wants to have that diversification and also have that angle right now in the current markets where value is being rewarded, they may want to consider OAKM.

Wodeshick: Along with fixed income and international equities, I’ve seen chatter about moving towards value-oriented equity strategies right now. Do you see value as a good opportunity at the moment? And if so, do you think investors should be pairing any other strategies with value, should the market shift once more?

Elward: Value is an exciting place right now. With some seeing growth as being out of favor, and some of these investors knee jerk reacting and selling off growth, they’re looking for ways to redeploy those assets that they’re selling. I think a lot are looking at value. Some might be looking for non-U.S. as well. If they previously were a U.S. growth type investor, I’m guessing they’re probably going to redeploy those assets, unless they’re really fearful, in other equities. I think value and non-U.S. are the likely choices. 

If they are really a very nervous investor, they’re going to go into fixed income. With the likelihood that rates will be cut by the Fed maybe three times this year, you might get some duration pickup for those invested in mid- to longer-term duration fixed income. 

Wodeshick: We’ve also seen a lot of data supporting increased interest from advisors in actively managed ETFs. Notably, Natixis offers a wide variety of those products. Which factors of active management do you think are becoming increasingly attractive to investors and advisors in this moment? Is it the risk management?

Elward: We’ve been in active ETFs for about eight years, and when we launched our first ETF, there were about 100 active ETFs, and now there are well over 1000, so it definitely has exploded in interest. As to why it’s exploding in interest, my guess is two things, one of which you said, which is the risk management. With an active manager looking over your fund or ETF, you have someone that’s looking for the risk in markets. They’re able to think about how the different securities themselves, have risk correlations that could be negative. 

Whereas, if you’re just owning passive straight-out, you’re just relying upon an index provider making choices on what goes into the index, and there may be less thought about the correlation of risk for the individual securities and the overall risk. We saw this with some of the indices, with the Mag Seven taking off over the last few years, there was so much risk in a small number of stocks that it really created a portfolio that most investors wouldn’t have known had that much risk in it. 

I think another reason is that people as investors want to try to have a chance to win. Active management gives you a chance to use your acumen in choosing managers making decisions on sectors or in market capitalization or in style, and gives you a feeling that you can actually win. I think people like active management partly for that reason as well. 

Lastly, why now for active management? The fees have come down in actively managed ETFs. With the fees coming down, that delta between actively managed ETFs’ fees and passively managed ETFs fees is shrinking. Some investors are seeing that active management, well, historically, maybe was said to be expensive. When you look at active ETFs now, they’re really not that expensive for what you get. 

Wodeshick: Natixis already has a good selection of ETFs available right now. How are you looking at opportunities within the ETF space at the moment? Is Natixis kind of comfortable with its selection right now? Are you and your team looking to expand it at all?

Elward: We have a lot of mutual funds already, with actively managed mutual funds, which have been attractive and utilized for decades. Active ETFs have not been as popular for very long, so we don’t have as many actively managed ETFs as we have active mutual funds.

But with four in our lineup now, we’re definitely looking at other ideas, and we don’t have any active fixed income products. We don’t have any active international products. Not to say that we have any official plans for this. We have no filings or anything such as that. But those definitely are areas that we and anyone who would look at our product line would consider as being opportunities. 

Wodeshick: Lastly, we’re talking right at the start of the Exchange conference. It’s certainly an exciting time to be here and be in Vegas. What aspect of the conference are you looking forward to the most?

Elward: Today, there are some really good sessions. I always like the Sunday sessions at the Exchange Conference. They’re more around business building ideas, and also regulatory opportunities. I’m interested to see what happens today on the regulatory panel. They will be talking about how the SEC might react to certain items on their desk, one of which is something called dual share classes, where they might approve the ability to have a mutual fund with an ETF share class. 

So that’s what I really like to do when I come here — to learn about that, and then also to meet with financial advisors. We’re one of the founding sponsors of the Exchange Conference. I enjoy seeing ETF experts that I’ve met over the years, and just catching up on what’s happening in their businesses and seeing what advisors and their end clients are talking about.

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