Nick Elward: Scott, in one sentence, how would you describe VNSE?
Scott Weber: VNSE is a high conviction, high active share, concentrated US equity strategy ETF.
Elward: So it’s concentrated and actively managed, which isn’t typical for an ETF…
Weber: Yes, it’s a large-cap focused, concentrated equity strategy benchmarked to the S&P 500® Index. We seek targeted returns through a disciplined investment process – and we usually hold around 30 stocks. It’s a high active share portfolio, constructed using bottom-up fundamental analysis – so security selection is the largest source of alpha for this ETF.
Elward: What are some of the primary return drivers that you use to generate alpha in VNSE?
Weber: There are three main alpha drivers and one risk consideration. Undervalued earnings growth is the first. So companies with a competitive advantage, stable to improving return on capital and future growth that is not properly reflected in the market price. Undervalued assets is the second driver. We look for companies priced at a discount to asset value with an identifiable catalyst to close the valuation gap. And third, we look for undervalued dividend yield, so stocks with a historically high, secure dividend yield – typically 10% or higher – and minimal perceived downside risk. Finally, we integrate a robust proprietary risk management model to maintain diversified exposure to risk factors similar to the S&P 500® Index.
Elward: What’s your assessment of the market as of the end of Q4 2021?
Weber: US equity markets continued to be led by larger capitalization stocks in the fourth quarter, with the S&P 500® rising 11.03% and the Russell 2000 Value rising 4.36%. International equity markets also rose modestly, with the MSCI EAFE increasing 2.69%. With rising inflationary pressures becoming a political issue, the Federal Reserve began modestly reducing their Quantitative Easing purchases and provided forward guidance that interest rate increases are on the horizon. We believe inflationary pressures have peaked in the US and emerging markets, but they continue to rise in Europe. Even though upward pressure on inflation is easing, inflation remains at elevated levels and may limit monetary policy support going forward.
Regarding economic growth, it continues to slow, and we expect supporting data to become visible as we exit the first quarter and move through the second quarter. As monetary policy becomes incrementally more restrictive, it’s important for inflationary pressures to ease faster than economic growth so that real growth can keep supporting the equity markets. If economic growth slows more quickly than inflation, earnings estimates and equity valuations may come under pressure in the first half of 2022.
Elward: So Scott, can you give us a sense of what you expect in 2022?
Weber: We think markets should start to get a glimpse of what the new “post-Covid normal” looks like – and to what extent inflation will be transitory. There is some solace in the fact that the inflationary cycle is now in a growth downturn, but a downturn is no guarantee that inflation will be as low as it was for the last decade. Globally, there are significant geopolitical, demographic, and industry shifts under way that we believe will materially change supply chains, trade flows, inflationary pressures, and currency flows. We feel these shifts will become more apparent as we move through 2022 and could materially impact asset prices.
Elward: So how is this affecting your portfolio positioning?
Weber: As a result of buys and sells and market action, the portfolio is overweight Information Technology, Industrials, Materials, Consumer Staples, and Consumer Discretionary and underweight Real Estate, Financials, Healthcare, Utilities, Energy, and Communication Services. During the quarter, the largest positive contributions came from Healthcare, Communication Services and Industrials. Our performance overall was strong, but those returns were offset somewhat by weaker contributions from Materials, Real Estate and Information Technology.
Elward: What are some ways investors might want to use VNSE in their portfolios?
Weber: There are many applications for VNSE because it’s an ETF that runs a high active share, concentrated, large cap US equity portfolio. It can be a good complement for indexed holdings, because it has the potential to generate alpha based on bottom-up fundamental analysis and security selection. We also try to source returns from multiple investment categories, which provides the potential to generate alpha in different market environments.
Average Annualized Total Returns1(%) as of 12/31/21
Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results. Total return and value will vary, and you may have a gain or loss when shares are sold. Current performance may be lower or higher than quoted. For most recent month-end performance, visit im.natixis.com.
You may not invest directly in an index.
1 Performance for periods less than one year is cumulative, not annualized. Returns reflect changes in share price and reinvestment of dividends and capital gains, if any. Market returns are based on the midpoint of the bid/ask spread at 4 p.m. ET and do not represent the returns an investor would receive if shares were traded at other times.
Gross Expense Ratio: 1.94%
Net Expense Ratio: 0.80%
The calendar year performance shown for 2020 is a partial year of performance since inception on 9/17/20 through 12/31/20.
As of the most recent prospectus, the investment advisor has contractually agreed to waive fees and/or reimburse expenses (with certain exceptions) once the expense limitation of the fund has been exceeded. This arrangement is set to expire on 4/30/2024. When an expense limitation has not been exceeded, the gross and net expense ratios and/or yields may be the same.
An exchange-traded fund, or ETF, is a marketable security. ETFs trade like a common stock on a stock exchange and experience price changes throughout the day as they are bought and sold.
An exchange-traded fund’s (ETF’s) market price is the price at which shares in the fund can be bought or sold on the exchanges during trading hours.
Here, the term “discount” refers to whether or not an exchange-traded fund (ETF) is trading at more or less than its net asset value (NAV) or intraday net asset value (iNAV). ETFs trading at a price that is higher (or more than) NAV or iNAV are said to be trading at a premium, whereas ETFs trading at a price lower (or less than) NAV or iNAV are said to be trading at a discount.
This is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed above may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted.
Before investing, consider the fund’s investment objectives, risks, charges, and expenses. Visit im.natixis.com for a prospectus or a summary prospectus containing this and other information. Read it carefully.
ETF General Risk:
Exchange-Traded Funds (ETFs) trade like stocks, are subject to investment risk, and will fluctuate in market value. Unlike mutual funds, ETF shares are not individually redeemable directly with the Fund, and are bought and sold on the secondary market at market price, which may be higher or lower than the ETF's net asset value (NAV). Transactions in shares of ETFs will result in brokerage commissions, which will reduce returns.
Unlike typical exchange-traded funds, there are no indexes that the Fund attempts to track or replicate. Thus, the ability of the Fund to achieve its objectives will depend on the effectiveness of the portfolio manager. There is no assurance that the investment process will consistently lead to successful investing.
Equity Securities Risk:
Equity securities are volatile and can decline significantly in response to broad market and economic conditions.
Non-diversified funds invest a greater portion of assets in fewer securities and therefore may be more vulnerable to adverse changes in the market.
Value Investing Risk:
Value investing carries the risk that a security can continue to be undervalued by the market for long periods of time.
Predatory Trading Practices Risk:
Although the Fund seeks to benefit from keeping its portfolio holdings information secret, market participants may attempt to use the Proxy Portfolio and related Proxy Portfolio Disclosures to identify the Fund’s holdings and trading strategy. If successful, this could result in such market participants engaging in predatory trading practices that could harm the Fund and its shareholders.
Proxy Portfolio Structure Risk:
Unlike traditional ETFs that provide daily disclosure of their portfolio holdings, the Fund does not disclose the daily holdings of the Actual Portfolio. Instead, the Fund discloses a Proxy Portfolio that is designed to reflect the economic exposure and risk characteristics of the Fund’s Actual Portfolio on any given trading day. Although the Proxy Portfolio and Proxy Portfolio Disclosures are intended to provide Authorized Participants and other market participants with enough information to allow them to engage in effective arbitrage transactions that will keep the market price of the Fund’s shares trading at or close to the underlying NAV per share of the Fund, while at the same time enabling them to establish cost-effective hedging strategies to reduce risk, there is a risk that market prices will vary significantly from the underlying NAV of the Fund.
Authorized Participant Concentration Risk:
Only an authorized participant (“Authorized Participant”) may engage in creation or redemption transactions directly with the Fund. The Fund has a limited number of institutions that act as Authorized Participants, none of which are or will be obligated to engage in creation or redemption transactions. To the extent that these institutions exit the business or are unable to proceed with creation and/or redemption orders with respect to the Fund and no other Authorized Participant is able to step forward to create or redeem Creation Units, Fund shares may trade at a discount to NAV and possibly face trading halts and/or delisting. The Fund’s novel structure may affect the number of entities willing to act as Authorized Participants, and this risk may be exacerbated during times of market stress.
Trading Issues Risk:
Trading in Fund shares on the NYSE Arca may be halted in certain circumstances. If 10% or more of the Fund’s Actual Portfolio does not have readily available market quotations, the Fund will promptly request that the NYSE Arca halt trading in the Fund’s shares. Such trading halts may have a greater impact on the Fund compared to other ETFs due to its lack of transparency.
The market value of the Fund’s shares will fluctuate, in some cases materially, in response to changes in the Fund’s NAV, the intraday value of the Fund’s holdings, and the relative supply and demand for the Fund’s shares on the exchange. There is a risk (which may increase during periods of market disruption or volatility) that market prices for Fund shares will vary significantly from the Fund’s NAV. This risk may be greater for the Fund than for traditional ETFs that disclose their full portfolio holdings on a daily basis because the publication of the Proxy Portfolio does not provide the same level of transparency as the publication of the full portfolio by a fully transparent active ETF.
S&P 500® Index is a widely recognized measure of U.S. stock market performance. It is an unmanaged index of 500 common stocks chosen for market size, liquidity, and industry group representation, among other factors. It also measures the performance of the large cap segment of the US equities market.
The Russell 2000 Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index.
Alpha: A measure of the difference between a portfolio's actual returns and its expected performance, given its level of systematic market risk. A positive alpha indicates outperformance and negative alpha indicates underperformance relative to the portfolio's level of systematic risk.
Active share indicates the proportion of portfolio's holdings that are different than the benchmark. A higher active share indicates a larger difference between the benchmark and the portfolio.
Bottom-up fundamental analysis: A bottom-up investing approach focuses on the analysis of individual stocks. In bottom-up investing, therefore, the investor focuses his or her attention on a specific company rather than on the industry in which that company operates, or on the economy as a whole.
Dividend yield is a financial ratio that tells you the percentage of a company's share price that it pays out in dividends each year.
Performance data shown represents past performance and is not a guarantee of future results. More recent performance may be lower or higher. Principal value and returns fluctuate over time (including as a result of currency fluctuations) so that shares, when redeemed, will be worth more or less than their original cost. Performance shown is net of all fund expenses, but does not include the effect of sales charges, taxation or paying agent charges, and assumes reinvestment of dividends. If such charges were included, returns would have been lower. Performance for other share classes will be more or less depending on differences in fees and sales charges.
ALPS Distributors, Inc. is the distributor for the Natixis Loomis Sayles Short Duration Income ETF, the Natixis Vaughan Nelson Mid Cap ETF, the Natixis Vaughan Nelson Select ETF, and the Natixis US Equity Opportunities ETF. Natixis Distribution, LLC is a marketing agent. ALPS Distributors, Inc. is not affiliated with Natixis Distribution, LLC.