When conviction changes, portfolios should too. The latest refresh of our truly active ETFs shows active management in action across US, European and global equities
Many ETFs describe themselves as active, but relatively few make meaningful changes when conviction shifts. Our latest CT QR Series Active Equity ETF portfolio refresh demonstrates a different approach. Companies do not remain in our portfolios because they are large, familiar or have performed well in the past. They hold their place because the evidence continues to support the investment case.
Markets and fundamentals are constantly evolving. Companies that dominated headlines yesterday may not offer the strongest opportunities today, while previously overlooked businesses can begin to show improving momentum, stronger quality characteristics or more attractive valuations. Active management means being willing to respond when the evidence changes.
Definitions
Quality: Is it a strong, resilient business? For example, an assessment of profitability, balance sheet strength, earnings durability etc.
Value: Is the share price attractive? Is it an attractive valuation relative to fundamentals?
Catalyst: Are there signs of improving fundamentals and sentiment? For example, earnings revisions, positive momentum etc
CT QR Series US Equity Active ETF
The recent semi-annual rebalance of our US strategy highlights how our process reallocates capital towards stronger opportunities within industries, rather than simply making broad sector bets.
Micron Technology1 was added on the back of strong business momentum and improving trading signals, alongside attractive efficiency and profitability characteristics relative to peers. At the same time, conviction weakened in companies such as Alphabet and Microsoft, whose Quality, Value and Catalyst characteristics (see Definitions box) deteriorated relative to other opportunities in the investment universe.
The reshaping of our technology exposure did not stop there. Applied Materials also entered the portfolio, reflecting stronger Quality and Catalyst signals. Together, these changes demonstrate how the process seeks the most attractive opportunities within an industry rather than simply maintaining exposure to the largest names.
Meanwhile, Mastercard was added due to strong Quality characteristics, highlighting that conviction can be driven by multiple factors, whether improving momentum, attractive valuation or durable business quality.
The removal of Alphabet and Microsoft may surprise some investors given their dominant positions in market indices. However, our process evaluates companies relative to peers, not relative to their popularity. When stronger opportunities emerge, capital is reallocated accordingly.
CT QR Series European Equity Active ETF
Europe remains a market where opportunities can vary significantly across sectors and countries, making stock selection particularly important.
New additions included Zurich Insurance, Volvo and Nordea, all of which demonstrated improving characteristics relative to peers, supported by stronger business momentum, attractive valuation metrics or a combination of both.
One of the most interesting examples from the rebalance was the contrast between Volvo and Ferrari. Ferrari remains a globally recognised business, but its valuation characteristics continued to rank poorly relative to peers. Volvo, by contrast, combined improving momentum with a more attractive valuation profile, leading to a higher level of conviction within the portfolio.
This highlights a key principle of the strategy: investment decisions are driven by peer-relative attractiveness rather than brand recognition or market reputation.
CT QR Series Global Equity Active ETF
The same approach is evident in the CT QR Series Global Equity Active ETF, where capital was reallocated towards companies demonstrating stronger relative characteristics.
Among the additions were PepsiCo, UnitedHealth Group, Citigroup and Sony Group, all of which displayed improving Quality, Value or Catalyst characteristics relative to peers.
Conversely, Tencent and Marvell Technology were removed as momentum and other key signals weakened. Marvell, in particular, had become less attractive relative to peers following a strong share price run-up.
The key point is that portfolio changes are rarely about a single stock in isolation. As conviction declines in one company, our process seeks other businesses within the investment universe where the balance of evidence has become more compelling.
The bottom line: active by name – or active by behaviour?
Many ETFs carry an active label while remaining relatively close to their benchmarks. The latest CT QR Series Active Equity ETF portfolio refresh demonstrates a different philosophy.
We are willing to remove globally recognised companies, add less obvious opportunities and reallocate capital across industries when the evidence changes. The objective is not to be different for the sake of it. It is to ensure capital is continually directed towards the companies that our research identifies as offering the strongest combination of Value, Quality and Catalyst characteristics at the time of the rebalance.
Importantly, this discipline extends well beyond the twice-yearly rebalance. Through our quick response methodology, we continuously monitor the drivers of conviction and can adjust portfolios due to downside risk-management purposes when company fundamentals change.
That commitment to reassessing the evidence – and acting when conviction changes – is what we believe true active management looks like.
