What is CWS? (Pros, Cons, and Strategies)
If you're looking for focused exposure to U.S. companies with strong growth potential, it's worth exploring CWS as part of your investment portfolio. Some investors use the AdvisorShares Focused Equity ETF (CWS) for both its strategic asset allocation and its potential for capital appreciation over time. In this blog post, we'll dive into what CWS is, along with its advantages and disadvantages, and discuss strategies to incorporate it into your investment plan.
What is CWS?
CWS stands for AdvisorShares Focused Equity ETF. This ETF is designed to give investors concentrated exposure to a select group of high-quality, growth-oriented U.S. companies.
CWS is actively managed by Eddy Elfenbein, author of the influential financial blog "Crossing Wall Street." Rather than passively tracking an index, CWS is curated based on specific criteria aimed at identifying companies with growth potential, strong fundamentals, and robust market positions.
Key Features of CWS
- Concentration: The fund typically holds 20-30 stocks, focusing on the highest-confidence picks.
- Active Management: The fund is actively managed, allowing for dynamic shifts based on market conditions and investment opportunities.
- Growth Orientation: Prioritizes companies with strong earnings growth, scalability, and competitive advantages.
CWS Composition
CWS typically includes companies from various sectors but with a strong focus on growth and quality. Top holdings often include well-known names in technology, healthcare, consumer staples, and financials.
Key Criteria for Selection
The investment strategy hinges on four main fundamentals: earnings growth, return on equity, low debt levels, and market leadership position. Through these criteria, CWS aims to assemble a portfolio of companies with solid growth trajectories and stock price appreciation potential.
Pros of CWS
Active Management Advantage
One of the unique features of CWS is its active management. Unlike passive ETFs that are tied to an index, the active strategy allows the fund manager to react to market trends, capitalizing on opportunities and managing risks dynamically.
Strategic Concentration
CWS’s focused approach means it invests in fewer companies with higher potential for growth. This concentration can lead to outperformance if the selected companies meet or exceed growth expectations.
Robust Fundamental Screening
The rigorous selection criteria ensure that only fundamentally strong companies make it into the portfolio. This can offer an extra layer of security and growth potential, shielding the investment from poorly performing stocks.
Cons of CWS
Higher Expense Ratio
Active management comes with higher costs. CWS has an expense ratio that is higher than many passive ETFs. This can eat into returns, particularly in markets where active management does not significantly outperform passive strategies.
Increased Volatility
With concentrated portfolios, there's potential for higher volatility. If one or more of the large holdings faces adverse conditions, it can more significantly impact the overall performance of CWS compared to more diversified ETFs.
Performance Dependency on Manager
Given its active nature, much of CWS’s performance hinges on the fund manager’s decisions. While this can be a benefit, it also introduces risks if the manager’s picks underperform.
CWS Investment Strategies
CWS is best suited for investors who are looking for targeted growth and can tolerate higher volatility. Below are some strategies to consider when investing in CWS.
Long-term Growth Strategy
Options for long-term growth could be explored by investing in CWS and holding for several years. The active management and focused investment strategy align with the goals of investors looking to grow their wealth significantly over time.
Consistent long-term investment allows you to ride out short-term volatility while benefiting from the compound growth of selected high-performance stocks.
Diversification Strategy
Though CWS is concentrated, it should ideally be part of a broader diversified portfolio. Complementing it with other ETFs or mutual funds that offer exposure to different sectors, regions, and asset classes can help mitigate risk while enhancing overall returns.
Dynamic Rebalancing
Given its active management, consider periodically reviewing the performance of CWS in the context of your entire investment portfolio. Rebalancing will help you maintain your desired risk level and capitalize on both poor and high-performing market phases.
Conclusion
CWS is an intriguing option for those who are looking for a focused, actively managed equity ETF. It offers potential for significant growth but comes with higher costs and volatility. Integrating CWS into a diversified portfolio with a long-term investment strategy can enhance overall returns and cushion against broader market fluctuations. As always, consider your financial goals, risk tolerance, and investment horizon when deciding whether CWS fits your strategy.