The ETF landscape, once the undisputed territory of passive indexing, is undergoing a seismic shift. Actively managed ETFs are not just growing; they are exploding in popularity, attracting billions in assets. This wave has brought some of the most storied names in investment management—firms with decades of pedigree in active stock selection—into the ETF arena. Giants like Dimensional, Fidelity, Capital Group, and T. Rowe Price, to name just a few, have all planted their flags with significant offerings.
This raises a fascinating question for investors: What happens when these legends of active management bring their strategies to the transparent, tax-efficient ETF wrapper?
Broad Diversification vs. A Focused Approach
The story begins with the number of holdings, which reveals a wide spectrum of strategies. In one corner, we have a fund like the Dimensional U.S. Equity Market ETF (DFUS), which holds over 2,400 stocks. This broad approach closely mirrors a total market index fund like the iShares Core S&P Total U.S. Stock Market ETF (ITOT). The high overlap (96%) between the two confirms this story: DFUS is telling a tale of broad diversification with a systematic, factor-based tilt, not one of radical deviation.
In the other corner, you have funds like the Capital Group Core Equity ETF (CGUS) and the T. Rowe Price Capital Appreciation Equity ETF (TCAF), holding just 69 and 90 stocks, respectively. This is a story of manager conviction. With overlaps of only 44% and 38% against the total market, their managers are making very deliberate, selective choices on the companies they believe will outperform.
And then there’s the middle ground, occupied by the Fidelity Enhanced Large Cap Core ETF (FELC). With 204 holdings, its story is a blend of the two extremes—a more focused portfolio than the broad market, but with more diversification than the most selective funds.
Conviction in the Top 10
The narrative of active management deepens when we look at the holdings data more closely. Across this group of five major U.S. equity ETFs, a surprisingly small number of companies are held in common. Only 14 stocks are found in all five portfolios, and just 40 are held by four of the five. This tells us that even among the largest, most well-known companies, these active managers are making very different choices.
This story is magnified in the top 10 holdings. Looking at each fund’s own top 10 positions, we see a clear spectrum of portfolio focus. DFUS closely resembles the benchmark, with its top holdings making up 34% of the portfolio, only slightly more than ITOT’s 33%. But as we move to the more selective funds, the active share in the top holdings increases. The top 10 holdings in FELC, CGUS, and TCAF make up 41%, 41%, and 46% of their respective portfolios.
When we analyze the top 10 common holdings across the group, we see how this active management is expressed in individual names. For example, in TCAF’s own top 10, it holds over 9.6% in Microsoft, a significant overweight compared to ITOT’s 6%. Similarly, CGUS expresses its view with a nearly 5% position in Broadcom—a stock that is a top 10 common holding but is weighted much differently across the funds. These aren’t minor tweaks; they are active decisions that fundamentally change the character of the portfolio and tell a story about where the managers see the most compelling opportunities.
Beyond the Top 10: The Real Active Story
While the top 10 holdings give us a glimpse into a manager’s thinking, the full list of holdings tells the complete story. It’s here, in the middle of the portfolio, that we often find the most compelling evidence of active management.
Consider TCAF’s portfolio. Outside of the well-known mega-caps, the fund holds a 2.8% position in Becton, Dickinson and Company, a medical technology firm that makes up less than 0.1% of the ITOT benchmark. This isn’t just an overweight; it’s a high-conviction bet that tells a specific story about where the manager sees unique opportunity in the Health Care sector.
Perhaps even more telling is what these managers don’t own. Active management is as much about the stocks you choose to avoid as the ones you choose to include. For example, a look at the full holdings reveals that TCAF and CGUS have zero exposure to several large, well-known companies that are significant holdings in the ITOT benchmark. This conscious decision to walk away from a widely-held stock is one of the strongest statements an active manager can make.
A Tale Told in Sectors
The managers’ unique market views are also evident in their sector allocations. The sector weights for DFUS and FELC hew closely to the ITOT benchmark, which is consistent with their stories of being index-aware with active enhancements.
In stark contrast, CGUS and TCAF paint a much different picture with bold sector bets. TCAF, for instance, shows a notable overweight to Health Care, telling a narrative about where it sees opportunity. Meanwhile, CGUS has a larger allocation to Financials and a lighter one to Technology compared to the benchmark, suggesting a different story about economic cycles or valuations.
Beyond Holdings: The Fundamental Story
The number of stocks and sector weights tell us what a manager owns, but the portfolio’s fundamental metrics tell us the financial story of why. Looking at valuation and growth characteristics reveals the kind of company each manager is targeting. While all these funds currently have a growth tilt based on ETF Action’s rules-based style assignment, the underlying data shows a fascinating divergence in their financial DNA. Are they seeking aggressive growth, quality at a reasonable price, or something closer to the market’s profile?
Once again, DFUS tells a story of being market-like, with a forward Price/Earnings (P/E) ratio and expected earnings growth rate nearly identical to the ITOT benchmark. FELC, however, carves out a slightly different path. Its portfolio trades at a lower forward P/E than the market, suggesting a focus on companies with more modest valuations.
The more selective funds, CGUS and TCAF, tell the most distinct fundamental stories. TCAF’s portfolio has the highest forward P/E ratio of the group, and this higher valuation is matched by a significantly higher expected earnings growth rate. This combination tells a clear story of a manager focused on companies with strong forward-looking growth prospects. CGUS, on the other hand, presents a different narrative. Its portfolio carries a valuation slightly richer than the market, but with expected earnings growth in line with the benchmark. This suggests the manager’s stock selection is based on factors beyond just the near-term growth outlook, leading to a unique portfolio construction.
What’s the Moral of the Story?
The key takeaway is that the “active” label is just the beginning of the story. When you look under the hood, you find a rich narrative about strategy, conviction, and market perspective. Some active managers tell a story of broad, systematic refinement, while others tell a tale of bold, selective bets.
As an investor, understanding which story an ETF is telling is crucial. Are you looking for a fund that closely tracks the market but tries to add incremental value? Or are you seeking a manager with a strong, distinct point of view? By digging into the data on holdings, top positions, overlap, and sector bets, you can find the ETF that tells the story that best aligns with your own investment philosophy.
But with active management, the quantitative data is only half the story. It provides the ‘what’—what’s in the portfolio and how it’s positioned. The crucial next step is the ‘why.’ Does the data align with the fund’s stated strategy and the portfolio manager’s long-term philosophy? Understanding the people and the process behind the numbers is what turns a good story into a compelling investment thesis.
Behind the Story: The ETF Action Toolkit
This entire narrative was built using the powerful analytics within the ETF Action platform. By running an Equity Overlap Report, we were quickly able to see the high-level story of portfolio focus and benchmark deviation through the number of holdings and overlap percentages. To get the finer details, we used the Fund Comparison Report and a Full Holdings Export. This combination allowed us to dissect not just the top 10 holdings, but the entire portfolio—uncovering high-conviction overweights and zero-weight underweights that tell the true story of active management. Together, these tools enable advisors and investors to look beyond the marketing and understand the real story of any ETF.
Disclosures
This material is for informational purposes only and should not be considered investment advice. All investments, including ETFs, involve risk, including the possible loss of principal. Investors should consider their investment objectives, risks, charges, and expenses carefully before investing.
This analysis was developed by the team at ETF Action. We leverage advanced AI tools to assist in the drafting and refinement of our content, based on our expert prompts, direction, and final review.
