A highly rated global active ETF
This is one of our favourites from the wave of actively managed ETFs that have been introduced in Australia.
Mentioned: Barrow Hanley Global Share ETF E (GLOB)
Most investors associate ETFs with passive investing. However, there are approximately 94 actively managed ETFs listed in Australia. Many of these actively managed ETFs replicate existing unlisted fund strategies. That is the case with the Barrow Hanley Global Share ETF (ASX: GLOB).
More information: Active or passive? Neither works for many investors
Overview
The ETF possesses attributes that continue to deserve our highest conviction and has received a Gold Medallist Rating from Morningstar's Manager Research Team. We have high regard for both its time-tested and disciplined approach to pragmatic value investing and its tenured high-caliber team that has executed it in an unwavering fashion.
The exchange-traded vehicle gives the convenience of intraday liquidity which many investors favour. However, ETF investors do face bid-ask spreads by purchasing an instrument that trades on an exchange. For ETFs with lower trade volumes and during periods of market volatility these spreads can widen.
This is a real cost for investors. And it is a cost that is not faced by managed fund investors as fund transactions occur after the underlying assets have been valued at the end of the day.
This may not be a consideration for long-term investors, but the costs associated with bid-ask spreads increases the more frequently an investor trades along with other transaction costs.
Investment strategy
The strategy employs a traditional value approach to global mid-to large-cap equities. The process starts with idea generation, which sees the team filtering the MSCI World Index to exclude stocks with market capitalisation of less than USD 1 billion using fundamental value metrics such as price/ earnings, price/ book, enterprise value/ free cash flow ratios, and dividend yield.
The resulting investable universe of approximately 600 stocks is then divided across the analyst pool by sector for further detailed bottom-up analysis, with the universe reviewed weekly for idea generation.
The focus for the analysts is identifying underappreciated companies that offer returns through depressed valuations, strong balance sheets, and those that are likely to experience positive changes in key operating fundamentals.
Each stock then has an intrinsic valuation defined with their best-and worst-case scenarios. The stringent process for a stock to qualify for a buy recommendation then faces a team-driven approval at the global value equity committee for inclusion in the 50-70 stock portfolio.
Individual positions are then conviction-weighted based on risk/ reward opportunity, with the portfolio ultimately having a tilt toward defensive value or traditional value depending on the stock selection in the relevant market environment.
Given this strategy’s value approach, the portfolio will generally have lower price/earnings and price/book than the MSCI World Index, and a higher dividend yield.
The strategy imposes guardrails against unintended sector/country bets by limiting sector and country exposures to 40% and 25% (ex US), respectively. Single-stock positions are capped at 5%, emerging-markets exposure is capped at 20%, and cash typically is less than 5%.
This does not preclude the team from taking sizable bets away from the benchmark. The team builds exposures where it can find the best companies with depressed valuations and strong balance sheets, while an eye on industry and market risk can see periodic sector rotations.
For example, the portfolio was around 25% exposed to financials at the end of 2017, but this has been reduced through time to 13% as of December 2023. Consumer staples, consumer discretionary, and materials were the current key overweight sectors when compared with both the MSCI World Value and MSCI World indexes.
The portfolio has typically underweighted technology, given the team’s views of lofty valuations. The portfolio typically has between around 50 and 70 names. The exposure to defensive value for the portfolio was 62%, and cyclical value was 38% of the portfolio as of December 2023.
