Allspring Active ETFs

Bryant VanCronkhite: Allspring’s fixed income teams recently launched the company's first active ETFs (exchange-traded funds), and we're not letting them have all the fun. So, I'm excited to share that we brought a popular equity strategy of ours to the market as an ETF: the Allspring Special Large Value ETF. ASLV offers investors an ETF version of our Special Large Value strategy that's been in existence for years through our mutual fund, SMA (separately managed account), and separate accounts that have combined assets of more than $2.8 billion. We understand that ETFs are the vehicle of choice for many investors, and we're happy to deliver the strategy in a tax-efficient, cost-effective, transparent, and liquid structure. So, what's so special about the Special Large Value ETF? Well, first of all, like the mutual fund and SMA, ASLV is managed by our Special Global Equity team, a deeply experienced and highly skilled group consisting of 19 investment professionals with an average of 22 years in the industry. What helps set that strategy apart starts with our CPA-based approach to evaluating companies. We've developed a unique process for analyzing a company's balance sheet to understand how they could use their available capital to grow the business in a way that the market isn't currently anticipating. Why this approach? Well, simply, we believe a company's balance-sheet-driven choices, such as acquisitions, capital expenditures, stock buybacks, and dividend payments, are the elements most controlled by a company's management team. But they are often only considered by investors after they happen. As an investor, we want to be ahead of these choices, so we can participate in the stock's upside when they become visible to other investors. The balance sheet analysis we do offers both a distinct and highly effective way for us to uncover and exploit market inefficiencies and differentiated sources of alpha. Our next differentiator is our rigorous bottom-up research. We recognize that successful security selection doesn't just happen without a sound or rigorous research approach. It's the reason teams like ours exist. We leverage a proprietary bottom-up investment process, distinctly focused on companies that possess three key characteristics. Number one, the company must have an asset that provides a durable competitive advantage. Number two, the asset must generate strong and consistent free cash flow. And number three, the company must have that always important balance sheet flexibility that I spoke about earlier. That combination creates a very defensible company with financial freedom that protects downside and provides upside optionality. Now, finally, we use our reward-to-risk decision-making framework to make unemotional and consistent stock choices and position sizing decisions. The team appraises companies for both upside and downside potential, investing in a stock price that adequately compensates us for the level of risk being taken. In other words, we don't make that common Wall Street mistake of only chasing upside—we balance it against our measure of the potential risk involved. The process helps us build a smart and efficient portfolio focused on our unique stock selection approach. So, are you ready to get active with equity ETFs? Consider ASLV to gain access to the Allspring Special Global Equity team’s unique CPA-based approach to value investing.

Jacob Seltz: I'm excited to share that we brought our active large-cap growth strategy to the ETF (exchange-traded fund) market: the Allspring LT Large Growth ETF. AGRW offers a new means of access, combining a long-standing and popular growth strategy with a vehicle known for its unique combination of benefits, including cost and tax efficiencies, daily transparency, and intraday liquidity. In essence, AGRW uses the same resources, the same research, and applies the same rigorous management process that exists in our SMA (separately managed account) and separate accounts—which have been around for decades and have more than $3 billion in assets. The fund is managed by our Empiric LT Equity team, which averages more than 21 years of industry experience. Why AGRW? There are a few key differentiators that make our investment approach and the ETF stand out. First is our focus on fundamentally superior companies with long-term top- and bottom-line growth potential, unique and resilient competitive advantages, outsized market share, and high barriers to entry. In other words, we target exceptional companies with superior growth potential. Second, we use a long-term focus, which means that every decision we make is based on our long-term investment thesis. We typically hold companies over a full business cycle or more. Why do we do this? We believe that, over the longer term, stock returns are driven by strong company fundamentals, which can ultimately drive outperformance. Third is our unique approach to portfolio diversification. AGRW seeks to find the best companies across four different growth classifications, which we identify as core, consistent, cyclical, and emerging growth categories. Our core growth classification acts as the building block of the portfolio. These are stocks with durable growth, independent of the economic environment and make up the majority of the portfolio. Second is our consistent growth classification. These stocks have more stable top- and bottom-line growth and tend to be less volatile than the other categories. Third is the cyclical growth classification. This part of the portfolio allows us to take advantage of where we are in the business cycle and benefit from a growing economy. Fourth is the emerging growth classification. These are less mature names with faster top-line growth and higher valuations as we seek to identify companies that can be market leaders in the next three to five years. This approach serves to expand the opportunity set and help manage portfolio risk. As business cycles and market sentiment change, it allows us to find underappreciated opportunities across these growth classifications. Our last differentiator is our proprietary decision-making tool called the Total Return Monitor. This is our valuation framework, a powerful portfolio construction tool that combines our long-term earnings estimates with a fair relative valuation and ranks every single company according to its expected return. We think this framework brings a truly consistent and repeatable approach to identifying growth opportunities and managing our portfolios. If you're looking to take a differentiated active approach to large-cap growth investing, then AGRW may be right for you.

Rick Genoni: The growth of the active ETF market has been staggering, due in large part to the structural benefits of the wrapper. Among those most often mentioned are portfolio transparency, intraday tradability, and the potential for lower costs. For most investors, these are dwarfed by the tax benefits that ETFs provide. And there's three drivers to this. The first is tied to the fact that ETFs are exchange traded. The majority of ETF shares change hands in what is known as the secondary market on the exchange. So, if I'm selling and you're buying, we can agree on a price for you to buy those shares from me without either of our transactions hitting the portfolio. With a traditional mutual fund, your purchase would have resulted in transaction costs for the portfolio to trade the cash. And my redemption may have led to the portfolio selling stocks or bonds to raise cash and possibly triggering capital gains for all shareholders. So, the fact that the majority of ETF shares change hands on the secondary market means the portfolio is shielded from transaction costs and capital gains resulting from those trades. The second driver is tied to how money typically moves in and out of an ETF. I noted that the majority of ETF trading takes place in the secondary market, but when there's not an actual buyer on the other side, ETF shares can be redeemed directly with the fund in exchange for in-kind stocks or bonds. This is known as the primary market. Because this trade is done in-kind, the portfolio manager can usher out the lowest cost lots. This not only doesn't trigger a capital gain, but it raises the cost basis within the fund. This in-kind transaction is beneficial in meeting a redemption in the fund but can also be used to reposition the portfolio. And third, just like mutual funds, an ETF can carry forward losses to offset future capital gains. It's important to remember that while ETFs are more tax efficient and help to manage capital gains driven by trading inside the fund, that doesn't mean investors will not pay capital gains. I hope you found this video helpful and now have a better understanding of how ETFs can provide better outcomes for you and your clients and help you keep more of what you've earned.