Evolve launches actively managed ETFs managed by Nuveen

Rudy Luukko 16 October, 2017 | 5:00PM

Evolve Active U.S. Core Equity, one of three new exchange-traded funds launched today by Evolve Funds Group Inc., will be managed by a Nuveen Asset Management team led by Bob Doll, the U.S. firm's chief equity strategist.

The ETF will invest primarily in stocks that are constituents of the Russell 1000 index of U.S. large-cap stocks. Stock selection will be based on security rankings provided by multi-factor quantitative models and on fundamental analysis of the securities. In addition, Doll and his team will use risk-management techniques to establish constraints on the amounts invested in individual securities and sectors.

The ETF's investment process is similar to that of the US$409-million Nuveen Large-Cap Value, a U.S.-domiciled mutual fund that Doll has led since joining Nuveen in June 2013. In the current Morningstar analyst report on the U.S. fund, analyst Linda Abu Mushrefova says Doll used the same approach at his previous employer, BlackRock, where his fund had above-average returns in the U.S. large-value category. "A few concerning aspects of the model, such as no ability to shift toward cash and inflexibility surrounding its sell discipline, lead to a process rating of Neutral," Mushrefova wrote in her May 5 report.

Evolve has also retained Nuveen to manage Evolve Active Short Duration Bond, which will invest primarily in bonds whose credit quality is below investment grade, otherwise known as high-yield bonds. This ETF may also hold other types of corporate-debt securities, such as senior loans, convertible securities and preferred shares. Nuveen will employ a short-duration strategy that will lessen the portfolio's sensitivity to changes in interest rates. Evolve says the portfolio will generally have an average duration of less than three years. The ETF will make monthly income distributions.

The third new Evolve ETF launched today is Evolve U.S. Banks Enhanced Yield, which invests primarily in shares of the largest U.S. banks and employs equal-weighted indexing in combination with covered calls. Its reference benchmark is the Solactive Equal Weight U.S. Bank Index Canadian Dollar Hedged.

However, this ETF is actively managed, since Evolve Funds may write call options on up to 33% of the portfolio to generate premium income. Kirk Cooper, chief investment officer at Evolve Funds, said in a release that active management of covered calls "strikes a balance between generating yield and participating in any potential upside performance of the sector."

Listed on the Toronto Stock Exchange, all three new ETFs are available as either currency-hedged or unhedged units, with the latter having ".B" in the trading symbol. The management fee is 0.70% for the two equity strategies, and 0.45% for the fixed-income one. Each ETF charges an administration fee of 0.15%, which covers most operating expenses.

ETF Hedged units Unhedged units
Evolve Active US Core Equity CAPS CAPS.B
Evolve Active Short Duration Bond TIME TIME.B
Evolve US Banks Enhanced Yield CALL CALL.B
Source: Evolve Funds Group Inc.

About Author

Rudy Luukko

Rudy Luukko  Rudy Luukko is a freelance writer who contributes to Morningstar.ca on topics involving fund industry trends and regulatory issues. He retired in May 2018 from his position as editor, investment and personal finance, at Morningstar Canada, where he had worked since 2004. He has also worked as an editor and writer for various general, specialty and institutional media, and he has co-authored courses for the Canadian Securities Institute. Follow Rudy on Twitter: @RudyLuukko.