Episode summary
Rethinking Sector ETFs & Baron Capital’s ETF Debut
ETF Prime
· · Hosts: Nate Geraci, Simeon Hyman · Guests: Michael Cohick, Matt Camuso
Summary
VanEck’s Michael Coich argued that traditional sector ETFs can misstate sector exposure because U.S. diversification rules cap concentration in single stocks. In fast-growing areas like technology, that means capped funds can underweight the largest names such as Nvidia and Apple and overstate smaller holdings versus the benchmark. VanEck’s TruSector lineup tries to fix that by combining direct stock holdings up to the regulatory limits with exposure to another sector ETF to restore full market-cap-like exposure.
Coich said the approach is meant for investors who want a sector expression inside a diversified portfolio, not as a standalone holding. He pointed to technology as the clearest example of distortion and said the firm has already launched technology, consumer discretionary, and communication services versions, with filings in place for all 11 GICS sectors over time.
Baron Capital’s Matt Camuso discussed the firm’s ETF debut, saying it was driven by client demand for tax efficiency and by the chance to bring Baron’s long-term growth style into a more widely used wrapper. He said Baron’s ETFs, including the Baron First Principles ETF, are extensions of existing strategies, and that the firm uses active management to express high-conviction growth ideas while keeping a long holding period and a bottom-up research process. Camuso also emphasized that SpaceX is a deliberate, long-held position and not a template for broad private-asset inclusion in ETFs.
Key takeaways
- VanEck says sector ETFs can be structurally underweight megacap leaders because diversification rules cap single-stock exposure.
- The firm’s TruSector funds use a stock-plus-ETF structure to restore fuller exposure to sectors like technology.
- Coich said technology is the most distorted sector, citing roughly a 7 percentage point gap in Apple and Nvidia weights versus capped versions.
- Baron Capital entered ETFs to meet client demand for tax efficiency and to give ETF users access to its long-term growth process.
- Camuso said SpaceX is included only because Baron already owns it directly and has deemed it less liquid after internal review.
- Baron says its ETFs are intended to be long-term, high-conviction growth tools, not tactical trading vehicles.
Notable quotes
“traditional ETFs that are in the marketplace, passive ETFs or active ETFs, they're not solving for the problem where investors are not getting the full market cap exposure”
“we've created products that are actively managed um offering full market cap exposure to the sector they're intended to track”
“we don't trade stocks, we own businesses”
How the episode opens
Just because an ETF is brand new to the market, this is for the audience, you know, don't assume it's brand new in in to the firm. All right, joining me will be Michael Coic, director of product management at VANC, who of course is a top 10 ETF issuer. Currently, 74 ETFs, over $150 billion in assets.
And last year they began rolling out what they call true sector ETFs. And the basic idea here is that traditional sector ETFs can't fully allocate to some of the largest companies because of regulatory diversification limits imposed on funds. So in other words, funds are capped and how much of anyone stock they can hold.
And so if you think about this, that's become a much bigger issue over the past several years as some pretty prominent companies have grown in size. Like think of some of the largest meggaap tech companies and how big they've become. And so if you were invested in a traditional tech sector ETFs, you'd actually be underweight some of those companies relative to the benchmark index because those ETFs simply can't hold enough of each stock and you actually be overallocated to some of the smaller companies.
But VANC has come up with a solution to this problem through these true sector ETFs such as the VANC technology true sector ETF, ticker tru. And Michael is going to explain for us exactly how they're doing that and why Van believes this is important. And then we'll also spend a few minutes just talking about sector investing in general.
So I'll start there and then later I'll be joined by Matt Kamuso, head of ETF solutions at Baron Capital, who back in December, Baron entered the ETF space with a launch of five actively managed ETFs.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- sector etfs
- tracking error
- regulatory diversification limits
- active growth equity
- etf debut
Companies and tickers mentioned
- VanEck
- Baron Capital
- Baron First Principles ETF
Watch the episode
Watch “Rethinking Sector ETFs & Baron Capital’s ETF Debut” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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ETF Prime, this episode and its artwork belong to Nate Geraci. Octagon is not affiliated with the show; this page is an independent summary.
