3 Best New ETFs of 2023

As the ETF market continues to expand, investors should consider these three new funds.

Bryan Armour 10 November, 2023 | 4:37AM
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3 Best New ETFs of 2023

  1. T. Rowe Price Capital Appreciation Equity ETF TCAF
  2. BlackRock Flexible Income ETF BINC
  3. Calvert US Large-Cap Core Responsible Index ETF CVLC

This year, the trickle of ETF adoption by traditional mutual fund managers grew into a steady stream. Several of our favorite mutual fund managers threw their hats into the ETF ring for the first time. The three best new ETFs of 2023 all come from new entrants to the ETF market and that only benefits the quality and depth of ETF offerings available to investors.

T. Rowe Price Capital Appreciation Equity ETF TCAF, is the first ETF offered by two-time Morningstar Allocation Manager of the Year David Giroux. It’s not just ETF investors that gain from this launch—Giroux’s top mutual fund, T. Rowe Price Capital Appreciation, has been closed to new investors since 2014. But unlike Giroux’s multi-asset mutual fund, this ETF focuses solely on stocks.

Giroux leans into the tax efficiency of ETFs by changing his approach in three ways to minimize taxes. First, turnover is expected to be lower than in the mutual fund’s equity sleeve, targeting 10% instead of the average of 50% seen there. Second, the ETF targets a slightly lower dividend yield than the S&P 500 to limit taxable distributions. And third, the ETF will be less concentrated and is expected to hold 100 companies versus the 40-50 firms the mutual fund typically holds.

This ETF benefits from a lower fee of just 31 basis points, which helps lower the hurdle for Giroux to beat the S&P 500. We expect this ETF to be a top performer in the long run, resulting in a Morningstar Medalist Rating of Gold.

Next on my list is BlackRock Flexible Income ETF BINC, which is led by Rick Rieder, winner of Morningstar’s 2023 Outstanding Portfolio Manager award. Rieder is among the best bond managers in the world. Investors have flocked to his funds, which total over $100 billion in net assets in the U.S. alone.

Rieder’s teams are known for their broad and deep analytical resources combined with a well-honed process, resulting in a High rating for the People and Process Pillars for Rieder’s top mutual fund strategies: BlackRock Total Return MDHQX and BlackRock Strategic Income BSIIX.

Rieder’s first ETF should carry the same strengths. The PM team is supported by sector specialists and a fixed-income platform that includes 350 investment professionals and top-tier technology.

This ETF focuses on harder-to-reach fixed-income sectors. Out of the gate, the portfolio has targeted a short duration and a solid yield. Duration can be expected to change with conditions in the bond market. The ETF has focused its holdings in global credit, securitized debt, and emerging-markets sovereign debt. A 40-basis-point fee offers investors a welcome reprieve from the higher fees for investor share classes of Rieder’s mutual funds.

The third and final ETF on my list is Calvert US Large-Cap Core Responsible Index ETF, CVLC. Unlike the other two ETFs discussed, this is an index ETF. Calvert has long been a leader in responsible investing, and this was part of its first ETF launch. ESG ETFs have lost their luster over the past couple of years, but adding Calvert to the ETF menu is a meaningful step forward for the quality of ESG-related strategies.

This ETF closely resembles the mutual fund strategy of the same name, and investors can expect similar performance to the Russell 1000. The portfolio starts with the 1000 largest U.S. stocks and shaves off about 20% to 25% of holdings that fail to meet Calvert’s Principles for Responsible Investment. Stocks that make the cut are weighted by float-adjusted market cap while maintaining similar sector weights to the starting universe. This keeps tracking error low while discarding companies with poor ESG characteristics.

The main active risk taken by this strategy is its tilt away from energy and real estate. Energy stocks often fail to escape ESG screens and real estate securities typically lack sufficient data. The portfolio tends to bump up its allocation to tech stocks instead.

The mutual fund version of this strategy has performed well versus large-blend category peers. This ETF comes with a substantially lower fee, making it an even better bet than the mutual fund to continue outperforming in the future.

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
BlackRock Flexible Income ETF51.48 USD0.13
Calvert US Large-Cp Cor Rspnb ETF56.95 USD-0.18
T. Rowe Price Capital Apprec Eq ETF26.52 USD-0.30

About Author

Bryan Armour  Bryan Armour is director of passive strategies research for North America at Morningstar

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