ETF Edge - ETFs for tax efficiency, the momentum run and broadening out from Big Tech 8/4/25

Episode Date: August 4, 2025

Investors continue to favor market cap weighted indices, but it might be time to consider diversifying after July’s fund inflows. Plus, getting tax efficient with ETFs. We examine Astoria’s approach with its US Enhanced Core Equity ETF. Todd Rosenbluth, VettaFi director of research, and Bruce Lavine, Astoria Portfolio Advisors head of ETFS and COO, discuss all. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by InvescoQQQ. Let's rethink possibility. Invesco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things in exchange-traded funds, you're in the right place. Every week, we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors.

I'm Leslie Picker, in for Dominic 2. With most of the big tech earnings behind us, concentration risk is starting to, weigh on investors' minds again. So how should they position now? Here's my conversation with Bruce Levine, COO, and head of ETFs at Astoria Portfolio Advisors, along with Todd Rosenbluth, head of research at VETify. Let's start off with the appetite for equal weight. Todd, we saw another strong month of inflows in July with investors sticking with big tech. You say investors should be diversifying. Bruce, you're working on a novel approach that could help investors with diversifying plus a tax benefit. So Bruce, how does Astoria's large cap fund stand out?

So the idea behind a 351 fund is that you have a lot of stocks that get stuck from attack perspective because they're up so much. Think about buying Nvidia two years ago. Perhaps you bought Microsoft 10 years ago. And so with the 351 fund, you can only at the launch of an ETF, you can transfer some of these securities into the fund and you'll get back shares in the ETF and what you kind of transfer in is a basket unique to you that has some diversification as required by the law but perhaps different diversification or less diversification than you're going to get when you get our fund back our fund will be a quantitatively managed active strategy designed to track the S&P 500 so you know for a

portfolio let's say that has you know 30% Nvidia you're going to get that a portfolio that maybe has somewhere between 5 and 7% in the year or something like that. So a very interesting tax tool for investors, and these are becoming quite popular. We have a fund, the ticker is L-C-O-R, L-C-C-R for large core, and we're launching it on October 1st, and we're seeing a lot of interesting. Todd, why do you think investors should consider one of these funds, especially given, you know, the tax benefits, the diversification element? I mean, is this the best way to get that kind of exposure?

Well, there's lots of ways to get exposure to diversification and tax benefits. So, ETFs in general, are a tax-efficient vehicle, so you don't pay capital gains unless you're buying and selling. So this is really focused for people who have a concentrated individual stock position and want to move that in instead of buying an ETF and holding it necessarily the same way. So what we've seen is that investors have been rotating and gravitating towards equally weighted ETFs so Invesco has the S&P 500 equal weight ETF RSP, Goldman Sachs has an ETF GSEW that's also

equally weighted you spread the 500 largest companies around for diversification and we're also seeing people turn to more fundamentally focused ETFs that get the diversification because it owns some companies based on what fits into the portfolio so victory shares for example has a free cash flow growth ETF, GFL or GF, GFlow that is fundamentally focused, strong free cash flow, and growth characteristics, you get diversification through that in a relatively new ETF format. So Bruce, given that we've seen just, you know, in some ways and at some points in time,

historical levels of concentration for the S&P 500 and certain MAG7 names, how does this strategy become more popular in light of all of that. As Todd mentioned, you move, say, in NVIDIA, which has run up a bunch into one of these strategies, don't need to worry as much about capital gains, taxes and the like. You know, is that kind of element of the market, the key here? Yeah, you know, I think of this as one tool in your tax toolkit, right? There are many others. There are ways to harvest losses. There are various things to do. But this one's unique because, you know, on October 1st, if you join our fund, you're going to, we're going to solve your problem. And so I think the tech concentration you're referring to has really been the trigger for

this, the popularity of the 351 fund. And, you know, we see it continuing now that the education is out there, you know, people are using it for different reasons. Again, if they're overweight company stock, you know, they might want to diversify. If they have legacy positions from years ago in a separately managed account that maybe don't reflect tomorrow's economy, they might want to swap out of those with no taxation and into our funds. So there's a lot of reasons we're finding that people are intrigued by this. They just really didn't know what it's available. People are familiar with a 1031 in real estate. That rings true for a lot of people. This has sort of got a lot of similarities to that from the stock side. And Todd, you mentioned that you're seeing a lot

of flows into equal weighted S&P funds. Is that kind of driven, you think, by this constant concentration risk that everyone is talking about and that's a way to kind of garner more exposure to a diversified basket of stocks. Yeah, it's hard to see Nvidia at 8% of the S&P 500 Microsoft, not far behind it, 7%. And not get concerned about how concentrated you are with an ETF like SPY or Vanguard 500 VOOO. So people are looking to get the benefits of diversification. You can do that through an equally weighted approach that we talked about. You can also take advantage of the growing number of actively managed ETFs that have come to market.

So stocks will be inside the portfolio because management has confidence that there's still more room to go. So we've seen firms like TRO Price or Capital Group or Fidelity have a lot of success with actively managed equity ETFs. You might still find Nvidia and Microsoft within the portfolio, but there's an expert manager who, who's there, who's made that decision instead of it's just running up because it's the largest company within the overall market. And Bruce, do you think that, you know, having a more diversified basket serves essentially as a hedge to that concentration risk? Is that a good way to protect against, you know, such a run-up in individual names?

Absolutely. So, you know, what Todd mentioned, I'm going to have to do a little plug for our solution to the over-concentration risk, which is an ATF called the ticker is ROE. It's our quality kings. And so we launched this because we were building ETF portfolios. We got very concerned about the overweight, but we didn't like the fact that the equal weight 500, when you invest in it, you become extremely underweight tech, maybe 15% versus 35 for the benchmark.

So we created a quality screened universe. and then we choose from that universe and we equal weight 100 names, and we make sure to match the sector weights of the S&P. So if the S&P is 35%, and we're 35%, and that's been a very strong strategy for us and has done very well against the traditional equal-weighted. And so generally just to your question about the over-concentration, history is littered with the companies that were riding high

way back to Kodak, IBM, GE, Lucent, Cisco, on and on. And so what we would tell advisors, you know, their clients are often giddy right now because of what's happened with NVIDIA and Microsoft and others. But we would say, hey, if there's a chance to, you know, prune these things back without taking taxes, you should take a hard look at the 351. Yeah, they don't want to put all their eggs in one ETF basket. It makes sense. Todd, the S&P 500 Momentum Index is up more than 34% this year.

What's behind the interest in momentum right now? Is this just part of the overall kind of risk on sentiment that we're seeing in the broader markets? So this is the opposite of what we were just talking about of reducing your concentration. A momentum strategy is letting your winners run. And so there's an ETF from Invesco, SPMO, that gives you exposure to the stocks that have the strongest relative strength. part of the S&P 500, the 100 largest of those companies that have the best relative strength. And it's been outperforming the broader S&P 500 this year, as well as on a rolling 12-month basis. What's interesting is that it's not just technology stocks.

That's what I would have thought would have been the case, that and consumer discretionary. It's Coles and American Eagle. We're seeing those companies. We're also seeing financials and consumer staples. So Walmart and Costco, J.P. Morgan, these are stocks. that are also within the portfolio. I think we're showing on the screen another ETF, MTF, MTF, which is the I-Share's version of momentum strategies.

It's rebalanced at a different period of time. It's a different universe. It's not exactly constructed the same. So it doesn't perform exactly the same. So it's really important when you're looking at a momentum ETF or any of these other ETFs to make sure that what you get inside the portfolio is what you think you're getting inside. If you want more technology, make sure that portfolio

has more technology. Do momentum ETFs tend to outperform over the long run? I ask because, you know, there's the adage, past performance, not indicative of future results. So here you have an ETF that literally is about the past performance being great. It has done well this year. Does it tend to do well kind of impurecally over a longer horizon? Yeah, so momentum is one of those factors that has historically outperformed the broader marketplace.

We've seen quality companies. We were just talking about a quality ETF, and there's a bunch of those that are. are out there from a number of different providers. Value strategies tend to outperform, but momentum is one of those areas. So M-T-U-M-N-S-P-O are good ways to get exposure to that trend. Yeah, because momentum works both ways as well. Bruce, any last thoughts from you?

You know, there's a lot of great tools out there in the market, and I think it's worth investors doing their homework to find out about them. 351 is certainly one of those. If you visit us at AstoriaAdvisors.com, there's lots of them. and love to talk to you. That does it for ETF Edge, the podcast. Thank you for listening. Join us again next week

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