Count Ron Baron’s Baron Capital as the latest well-known active manager to throw its hat in the exchange traded funds (ETFs) ring. On Monday, the firm introduced five actively managed ETFs, some of which are ETF descendants of existing mutual funds, meaning Baron didn’t convert those open-end products to the ETF wrapper.
There’s nothing wrong with that. As has been noted, it’s more efficient for some issuers to simply introduce ETF equivalents of established mutual funds rather than convert those funds to ETF status or wait for approval for ETF share classes.
On to the interesting stuff. For the those not in the know, Baron Capital has been around for more than four decades and is a dedicated growth investment firm. Ron Baron is a close friend of Elon Musk’s and his asset management firm has long been a noted Tesla (NASDAQ: TSLA) shareholder. Today, the firm’s largest investment is a stake in still private SpaceX, also a Musk company.
“Being a long-term investor means we think about our investments as business owners,” according to Baron Capital. “We have no particular views on the near-term course of interest rates, inflation, markets, or the overall economy. History shows most that have were wrong anyway. Instead, we are laser-focused on each company’s business fundamentals and our vision of what a business could become. ”
Examining the New Baron ETFs
Without further ado, these are the new Baron ETFs: Baron First Principles ETF (NYSE: RONB), Baron Global Durable Advantage ETF (NYSE: BCGD), Baron SMID Cap ETF (NYSE: BCSM), Baron Financials ETF (NASDAQ: BCFN), and Baron Technology ETF (NASDAQ: BCTK).
RONB, which can “leverage of up to one third of total net assets when market conditions and opportunities present themselves,” is an all-cap, primarily domestic equity strategy. Tesla is the largest holdings at a weight of 9. 16%, well ahead of second place Shopiff (NYSE: SHOP) at 5. 53%.
Moving along, as its name implies, BCSM focuses on mid- and small-cap stocks with growth names being the points of emphasis. SMID growth is a corner of the equity market where active management can be a boon to clients and investors because with active oversight, managers can ensure they’re presenting end users with a portfolio of (mostly) profitable companies – no small feat in a space littered with firms that aren’t close to being profitable.
BCGD, the global ETF, focuses on stocks that are prodigious generators of free cash flow. That’s always an alluring trait and one that create return of excess cash to this ETF’s investors. The rookie ETF lives up to its global billing as four of its top 10 holdings are not US-based corporations.
The Baron Financials ETF lives up to the issuer’s growth DNA. Rather than focusing on bank and insurance stocks as do so many of the passive ETFs in this category, this new ETF is a compelling collection of credit card network providers, established and next-gen brokerage firms, ETF index providers and ratings agencies, among others.
The Baron Technology ETF, the ETF descendant of a four-star rated mutual fund, features exposure to six of the magnificent seven with Alphabet (NASDAQ: GOOGL) being the outlier. This new ETF could be a fine way for investors to tap into the semiconductor side of the artificial intelligence (AI) trade with some added diversity as Nvidia (NASDAQ: NVDA), Broadcom (NASDAQ: AVGO) and Taiwan Semiconductor (NYSE: TSM) combine for more than 28% of the roster.
Baron Enhancing Access
Hardly a day goes by without a new ETF coming to market and active products are significant drivers of that population growth. So it stands to reason that advisors and investors may be pondering what’s special about Baron entering the ETF realm.
First, it’s further confirmation of the validity and strength of the ETF wrapper. Advisors and retail investors want access to the best active managers, but many don’t want to deal with the high fees, lack of liquidity and tax inefficiencies found with mutual funds.
Second, Baron is democratizing access to its storied track record. Minimum investments on its mutual funds range from $2,000 to well into seven figures. No such roadblocks exist with the issuer’s new ETFs or any ETF for that matter.