With an investment philosophy that prioritizes decentralized structures, disciplined capital allocation, and high-conviction portfolio management, BCHP aims to provide resilient growth. This approach aligns management interests with shareholder value, making this ETF a compelling choice for advisors and clients seeking sustainable, long-term performance in their portfolios.
The world of large-cap growth funds is often crowded and, frankly, homogeneous. But the Principal Focused Blue Chip ETF (ticker: BCHP) seeks to break the mold by concentrating on what Principal Asset Management calls “owner-operator” companies.
The Principal BCHP exchange-traded fund (ETF) is built around a philosophy that resonates deeply with advisors and clients who prioritize strong, entrepreneurial-driven returns. In a recent interview with The Wealth Advisor’s Scott Martin, Hans Vander Plaats, Principal’s Managing Director and Client Portfolio Manager, discussed how BCHP’s focus on owner-operator businesses provides a compelling pathway to resilient growth. Vander Plaats highlights that companies led by owner-operators, regardless of size, benefit from a decentralized structure and thoughtful capital allocation—qualities that directly impact long-term performance.
“Even when it gets to be a really large cap company, the same benefits that an owner-operator provides—whether maybe it’s a financial advisor who’s an owner-operator or their client who is the owner of their business—are clearly there. And the impact they have on those businesses is significant,” Vander Plaats explains. The alignment of incentives is what sets BCHP apart, as it seeks out companies with a unique operational framework that prioritizes autonomy at all levels of business.
Owner-Operators as Differentiators
BCHP’s investment strategy is rooted in the belief that companies led by owners or founder-operators are often better positioned for long-term success. Vander Plaats notes that these leaders—whether they are founders, co-founders, or even the second or third generation of leadership—bring an unparalleled passion and commitment to their roles. “It’s just different. It’s not a nine-to-five; it’s not another step on a career track for them. This is what they love,” he asserts.
This commitment often manifests in an organizational culture that prioritizes sustainable growth, innovation, and customer satisfaction. By investing in such companies, BCHP aims to align its portfolio with organizations where leaders are fully invested in their outcomes, thus driving shareholder value over time.
Vander Plaats added that an owner-operator structure can foster an “entrepreneurial spirit” in larger companies without adding layers of bureaucracy, which can weigh down decision-making and flexibility.
Decentralized Structures and Local Decision-Making
The unique structure of owner-operator companies often allows for a decentralized approach to management, which is another key aspect of BCHP’s investment strategy. Vander Plaats emphasizes that these companies tend to empower local decision-makers.
“They don’t have a ton of people proportionally at headquarters; they want people closer to clients or customers. They want to try to get decisions made there,” he explains. This operational model enables quicker decision-making and fosters a customer-centric focus, as local leaders are better positioned to understand and respond to client needs.
An illustrative example from BCHP’s portfolio is TransDigm, a long-term holding that exemplifies this decentralized philosophy. Vander Plaats elaborates, “They allow their independent businesses to run independent businesses . . . with the proper oversight and drive and accountability from the top to follow the TransDigm playbook.” This model not only enhances agility but also encourages innovation and accountability at every level of the organization.
Capital Efficiency: A Hallmark of Owner-Operator Companies
BCHP’s focus on capital efficiency is another critical component of its investment thesis. Owner-operators typically exhibit a disciplined approach to capital allocation, viewing available capital as a valuable resource that can be used to drive growth and enhance shareholder value. Vander Plaats explains, “Your opportunity set or your options for what to do with capital don’t change that much. You can make acquisitions, you can buy back stock, you could pay out a dividend, you can invest in the growth of your own company.”
This strategic thinking aligns with the principles outlined in a book Vander Plaats admires, The Outsiders by Will Thorndyke, which emphasizes the importance of rational capital allocation. BCHP seeks companies that not only have decentralized organizations but also practice “radically rational capital allocation”—a fundamental characteristic that Thorndyke identifies as enhancing long-term value creation.
High-Conviction Portfolio Management
BCHP adopts a high-conviction approach to portfolio management, which reflects its confidence in each holding. With about 20 stocks in its concentrated portfolio, BCHP embodies a commitment to quality over quantity. Vander Plaats notes that many clients prefer “best ideas portfolios for today,” and this concentrated strategy caters directly to that demand. “We thought this would be the right kind of vehicle given the types of clients who are interested,” he explains.
This focus on a limited number of high-quality companies allows BCHP to conduct in-depth research and maintain a strong understanding of its holdings. The ETF aims to avoid the pitfalls of over-diversification, which can dilute potential returns and hinder the fund’s ability to capitalize on the best investment opportunities.
As the demand for active ETFs continues to grow, BCHP offers investors a compelling alternative in the large-cap growth space. Its strategy emphasizes quality and alignment, moving beyond merely tracking an index to deliver superior performance.
Alignment Through Ownership: Hilton Worldwide as a Case Study
One of the most compelling aspects of BCHP’s investment strategy is its emphasis on alignment through ownership. Vander Plaats highlights Hilton Worldwide, a prime example of the kind of company BCHP seeks to invest in. Under the leadership of CEO Chris Nassetta, Hilton embodies an owner-oriented culture that prioritizes long-term shareholder value. “He’s been running it for probably 17 years now, never sold a share of stock,” Vander Plaats notes, emphasizing the CEO’s commitment to the company’s success.
To quantify this alignment, BCHP employs a metric known as the aligned ratio, which compares a CEO’s ownership to their annual cash compensation. Vander Plaats illustrates this point with Nassetta’s impressive ratio: “For Chris, that’s over 200 to one.” This figure is not merely a statistic; it reflects a deep-seated commitment to aligning executive incentives with shareholder interests, further solidifying BCHP’s focus on investing in management teams that are truly invested in the companies they lead.
Delivering Growth in the Large-Cap Space
For investors seeking a high-quality, actively managed large-cap growth portfolio, BCHP stands out as a unique offering. Vander Plaats asserts, “We believe that if we have the right set of companies, we follow our process correctly, execute it well, we’ll be able to be through S&P 500, through Russell 1000 growth.” The confidence is rooted in the team’s disciplined investment approach, rigorous research, and commitment to aligning management interests with those of shareholders.
BCHP’s performance will ultimately be judged by its ability to deliver returns that exceed those of its benchmarks. The focus on owner-operator companies, decentralized structures, and capital efficiency positions the fund well in an increasingly competitive environment. As the market landscape continues to evolve, BCHP’s differentiated approach may well resonate with investors seeking not only growth but also alignment and accountability in their investment choices.
A Compelling Option for Client Portfolios
With its strategic approach to high-yield investment, the Principal BCHP ETF can be a valuable addition for advisors seeking a high-yield solution that doesn’t compromise on risk. For advisors navigating today’s market, BCHP offers a path to generate returns while protecting client investments—a compelling choice for advisors committed to balancing income and resilience.
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Additional Resources
- Contact Principal Asset Management
- Principal Focused Blue Chip ETF (BCHP) Fact Sheet
- BCHP Summary Prospectus
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Disclosures
Carefully consider a fund’s objectives, risks, charges, and expenses. For a prospectus, or summary prospectus if available, containing this and other information, visit www.PrincipalAM.com or call sales support at 800-787-1621. Please read it carefully before investing.
ALPS Distributors, Inc. is the distributor of the Principal ETFs. ALPS Distributors, Inc. and the Principal Funds are not affiliated.
Unlike typical ETFs, there are no indices that the Principal ETFs attempt to track or replicate. Thus, the ability of the Fund to achieve its objectives will depend on the effectiveness of the portfolio manager.
Investing involves risk, including possible loss of principal.
Past performance is no guarantee of future returns.
