Hartford Funds has introduced its first actively managed, semi-transparent ETF with the launch of the Hartford Large Cap Growth ETF (HFGO US) on Cboe BZX Exchange.
Vernon Meyer, Chief Investment Officer of Hartford Funds.
The fund is sub-advised by Boston-based Wellington Management, an independent investment manager with more than $1 trillion in assets under management.
HFGO seeks long-term capital appreciation by investing in a concentrated portfolio of large-cap growth companies listed in the US.
The ETF has an expense ratio of 0.59% and has come to market with $25 million in assets.
Hartford Funds has adopted Fidelity Investments’ semi-transparent ETF model to shield HFGO’s daily portfolio holdings, thereby preventing the risk of front-running, while maintaining the tax efficiency, liquidity, and lower costs typically associated with ETFs.
Vernon Meyer, Chief Investment Officer at Hartford Funds, said: “We believe that this new fund, which offers active equity management in an ETF wrapper, has the potential to be an attractive option for both financial professionals and investors. We are not only pleased to further strengthen our sub-advisory relationship with Wellington, but also our partnership with Fidelity, whose active equity ETF model has allowed us to expand our offerings.”
Hartford Funds has significantly broadened its ETF line-up in 2021 with the rollout of its first thematic ETF, its first socially responsible ETF, and its first commodity-focused ETF.
Investment approach
HFGO is managed by Stephen Mortimer and Mario Abularach, Senior Managing Directors and Partners at Wellington Management.
The fund seeks to outperform the Russell 1000 Growth Index by using a bottom-up process to identify large-cap companies that Wellington believes exhibit long-term growth potential.
Eligible securities include common stocks of US-listed firms with market capitalizations above the lower threshold of the Russell 1000 Index which is approximately $530 million as of 30 September. Up to 25% of the fund’s assets may be invested in American Depository Receipts.
According to the prospectus, the fund combines both value and growth factors by utilizing fundamental assessments of management quality, balance sheets, income statements, anticipated earnings, revenues, dividends, and the business environment.
The security selection process also incorporates an analysis of ESG factors.
Mortimer and Abularach serve as portfolio managers for the $7.8 billion Hartford Growth Opportunities Fund which delivers a similar strategy (in mutual fund format) but invests across the US market capitalization spectrum.
This fund has outperformed its benchmark, the Russell 3000 Growth Index, over the past ten years, returning 19.97% per annum compared to 19.08%. It is notably underperforming year-to-date, however, up just 12.39% versus 23.03% for the benchmark. Data as of the end of October.
Fidelity semi-transparent model
Fidelity’s semi-transparent ETF model works by publishing a proxy portfolio consisting of the ETF’s actual portfolio holdings, cash, and representative ETFs that hold securities similar to those held by the fund.
By using diversified ETFs instead of individual stocks within the proxy portfolio, the model is able to effectively shield the manager’s intellectual property from front-runners.
The percentage weight overlap between the holdings of the ETF and its proxy portfolio is published on a daily basis, helping investors understand how similar the tracking basket is to the fund’s actual holdings.
The proxy portfolio is optimized to closely track the ETF’s performance, thereby providing enough information to effectively price and trade fund shares throughout the day. Actual portfolio holdings are disclosed on a monthly basis with a 30-day delay.