Personally, I prefer funds that look different from market-cap weighted averages. Funds that take a more proactive concentrated stands with a different weighting make-up. Sure, those strategies risk being wrong and underperforming, but at least there is a differentiator against everything else.
That’s one of the reasons I like the Nuveen Growth Opportunities ETF (NYSEARCA:NUGO). NUGO is an actively managed fund that primarily concentrates on U.S. companies with a market capitalization of at least $1 billion. Launched in September 2021, NUGO aims for long-term capital appreciation, seeking out high-quality companies that demonstrate potential for attractive earnings growth, strong relative valuation, appealing cash flows, and significant long-term returns.
The fund’s investment approach is distinguished by its focus on growth, quality, and value. The growth aspect targets market leaders with compelling earnings potential, while the quality aspect centers on well-capitalized companies with favorable or improving return on invested capital. Lastly, the value approach seeks out companies with robust valuations relative to the market and their peer group.
As of 31st December 2023, NUGO had $2.99 billion in assets under management and an expense ratio of 0.56%. It should be noted that from 1st November 2023, NUGO transitioned from a semi-transparent ETF to a fully transparent ETF, keeping its investment strategy intact.
Examination of NUGO Holdings
NUGO’s portfolio is composed of around 60 positions, majorly focusing on U.S.-listed companies. The fund’s holdings are concentrated, with the top 10 companies accounting for 68% of the overall portfolio.
The top five individual positions include all the familiar ones. It’s notable that Nvidia (NVDA) is the second-largest holding – something you don’t often see unless you’re looking at the holdings of active funds.
nuveen.com
It’s worth noting that these holdings, while significant, are subject to change based on market dynamics and the fund’s active management strategy.
Sector Allocation Analysis
NUGO’s sector allocations are primarily concentrated in Information Technology, which accounts for 46.73% of the fund’s net assets, followed by Consumer Discretionary (14.85%), Healthcare (11.27%), and Communication Services (11.08%). Other sectors like Financials, Consumer Staples, Industrials, Materials, and Energy constitute the remaining part of the fund’s allocation. As I have expressed before, I do get worried about Technology being such a large allocation, as it leaves the fund open to being beholden to a Tech correction after such a big run.
nuveen.com
Peer Comparison
When comparing NUGO with similar ETFs, there are several notable differences and similarities. These peers include the iShares S&P 500 Growth ETF (IVW), Invesco QQQ Trust ETF (QQQ), and Vanguard Growth ETF (VUG). NUGO has overall outperformed, suggesting that the active stock weightings and concentrated positioning has worked (albeit potentially with more company-specific risk).
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Pros and Cons of Investing in NUGO
Investing in NUGO comes with its own set of advantages and risks. On the positive side, NUGO offers exposure to high-quality U.S. companies that demonstrate potential for attractive earnings growth and strong relative valuation. This could prove beneficial for investors seeking long-term capital appreciation.
However, the fund’s active management approach, higher expense ratio, and concentrated portfolio present potential risks. Active management can lead to higher turnover and transaction costs, and a concentrated portfolio can increase volatility and sector-specific risks.
Final Verdict: Should You Invest in NUGO?
While NUGO presents an intriguing investment proposition with its focus on growth and quality, it still has much to prove. Its performance since inception has been good relative to peers. For potential new investors seeking exposure to the growth investing style, considering other, larger, and more liquid ETFs in this category, such as QQQ, could be a more prudent strategy.
Having said that, Nuveen Growth Opportunities ETF certainly makes it a point to take concentrated bets, which I still prefer conceptually to funds that have hundreds of positions and are just carbon copies of each other. This is worth considering if you want something that has a chance at outperforming, of course, at the risk of underperforming.
