Innovation continues to play a pivotal role in advisors’ ability to deliver superior returns with reduced risk for their clients over the long run. A prime example of such innovation is seen in the WealthTrust Long-Term Growth ETF (NYSE Arca: WLTG), a fund designed by WealthTrust Asset Management President and Chief Investment Officer John McHugh. As part of our ongoing coverage of innovation in the exchange-traded fund (ETF) space, Wealth Advisor Managing Editor Scott Martin sat down with McHugh to discuss his fund and its unique methodology for identifying companies with the potential for sustained growth, all aimed toward outperforming the market with less risk.
The cornerstone of WLTG’s strategy is its rigorous quantitative analysis. For 21 years, McHugh has refined a methodology that evaluates a database of 9,000 companies, identifying those with the highest potential for long-term growth. This approach significantly reduces the likelihood of investing in companies that miss their earnings estimates, a critical factor in maintaining a lower standard deviation, implying less volatility and thereby improving risk adjusted returns.
WLTG’s strategy is built on a disciplined process of screening companies based on their quantitative rankings. This method involves assessing various financial metrics, such as earnings revisions on a quarterly basis, to ensure that only the most promising companies are included in the portfolio. Historically, the market misses earnings estimates about 25% of the time, whereas WLTG’s companies miss only around 5% of the time. This discrepancy translates into a higher likelihood of outperforming the market with less risk.
Over the past 12 months, McHugh has integrated momentum artificial intelligence (AI) into WLTG’s strategy. This innovative approach allows the ETF to capitalize on current market trends by identifying companies within the Russell 1000 that exhibit the strongest momentum. By applying quantitative analysis to these momentum-driven companies, WLTG ensures a robust selection process that seeks to enhance performance with the goal of managing risk.
The dual-layered approach of applying quant analysis and screening for momentum offers a significant edge. It helps determine not only which companies to buy but also when to sell them, based on their earnings estimate revisions. This methodology provides a comprehensive view, allowing WLTG to maintain a balanced and dynamic portfolio that adapts to market conditions.
WLTG’s allocation strategy is another key differentiator. Seventy-five percent of the ETF is invested in large-cap or mega-cap equities. The remaining 25% is allocated to passive ETFs, such as the Invesco QQQ ETF or the SPDR® S&P 500® ETF Trust (SPY), for diversification and tactical flexibility. This methodology allows the fund to respond dynamically to market conditions, potentially shifting assets into short-term Treasuries, gold, or even small or mid-cap ETFs as market opportunities arise. This strategic allocation not only diversifies the portfolio but also provides a mechanism to manage market downturns. For example, during market declines, WLTG can shift its passive ETF holdings into more stable asset classes, thus preserving capital and maintaining performance stability.
The practical application of WLTG’s strategy is evident in its performance and adaptability. For instance, during the challenging market conditions of 2022, WLTG successfully transitioned from a growth-focused strategy to value, significantly outperforming large-cap growth managers. This ability to pivot based on market conditions is a testament to the robustness of its combined quantitative and momentum AI approach. Moreover, WLTG’s focus on large-cap and mega-cap companies, which are generally more capable of beating earnings estimates, further enhances its appeal. By avoiding companies with a high likelihood of missing earnings, WLTG maintains a high-performance standard, outperforming 95% of the time in terms of earnings results.
For clients, advisors, and broker-dealers, WLTG presents an attractive core holding that can be integrated into a variety of portfolio strategies. Its disciplined, rules-based approach to stock selection and risk management makes WLTG potentially suitable for both core and satellite allocations within managed portfolios. Advisors and clients can leverage WLTG’s methodology to construct more resilient and growth-oriented portfolios. The ETF’s focus on minimizing earnings misses and capitalizing on momentum trends offers a differentiated core that aims to enhance overall portfolio performance. Additionally, WLTG’s tactical flexibility allows advisors to adjust allocations based on market conditions, providing a dynamic tool for managing client portfolios.
WealthTrust’s commitment to education and client engagement further supports the integration of WLTG into advisory practices. McHugh and his team regularly conduct webinars and provide detailed insights into their investment process. This educational approach helps advisors understand and communicate the benefits of WLTG’s strategy to clients, fostering trust and confidence. The ability to offer clients a well explained, innovative investment product such as WLTG can enhance client relationships and attract new assets under management. Advisors can differentiate themselves by showcasing their knowledge of advanced investment strategies with a goal of delivering superior returns with managed risk.
The Wealth Trust Long-Term Growth ETF represents a significant advancement in the field of growth investing. By combining time-tested quantitative analysis with cutting-edge AI momentum, WLTG offers a unique approach that targets superior performance with reduced risk. For advisors and broker-dealers, WLTG provides a versatile and resilient core holding that seeks to enhance portfolio outcomes and support client engagement. As the investment landscape continues to evolve, innovative products such as WLTG will play a crucial role in enabling advisors to help their clients achieve their long-term financial goals. For additional resources, contact WealthTrust.
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Important Information
The Russell 1000® Index measures the performance of the large cap segment of the US equity universe. It is a subset of the Russell 3000® Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 93% of the Russell 3000® Index, as of the most recent reconstitution. The Russell 1000® Index is constructed to provide a comprehensive and unbiased barometer for the large-cap segment and is completely reconstituted annually to ensure new and growing equities are included. Invesco QQQ ETF tracks the Nasdaq-100 Index—giving investors access to the performance of the 100 largest nonfinancial companies listed on the Nasdaq. The fund and the index are rebalanced quarterly and reconstituted annually. The SPDR® S&P 500® ETF Trust (SPY) seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index (the “Index”). The S&P 500 Index is a diversified large cap U.S. index that holds companies across all eleven GICS sectors. Launched in January 1993, SPY was the very first exchange traded fund listed in the United States. Standard deviation is a statistical measurement of how far a variable, such as an investment’s return, moves above or below its average (mean) return. References to other securities is not an offer to buy or sell. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost, and current performance may be lower or higher than the performance quoted.
Fund Holdings for the ETF’s top 10 holdings and Fund Performance for the ETF’s standardized performance to the most recent month-end may be viewed at https://wealthtrustetf.com/fund/.
Investing involves risk including the possible loss of principal. The Fund’s performance depends on the skill of the Adviser in evaluating, selecting, and monitoring the growth rates and values of portfolio assets using tactical trend models and quantitative analysis. There can be no assurance that use of this methodology will enable the Fund to achieve positive returns or outperform the market. To the extent the Fund invests in ETFs, the Fund will indirectly bear its proportionate share of any expenses as well as risks. Some of these risks are investments in foreign securities which may involve currency fluctuations, political and social instability, and reduced market liquidity. Investments made in small and mid-capitalization companies may be more volatile and less liquid due to limited resources or product lines and more sensitive to economic factors. The fund may invest in inverse ETFs and the value of such investment will decrease when the index underlying the ETF’s benchmark rises, a result that is the opposite from traditional equity or bond funds. The net asset value and market price of an inverse ETFs are usually more volatile than the value of the tracked index or of other ETFs that do not use leverage. This is because inverse ETFs use investment techniques and financial instruments that may be considered aggressive, including the use of derivative transactions which may be more sensitive to changes in market conditions and may amplify the risk of loss for the Fund. Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses.
This and other information are in the prospectus or summary prospectus, a copy of which can be downloaded here or by calling 844-444-3863. Please read the prospectus or summary prospectus carefully before you invest. The WealthTrust ETF is distributed by Foreside Fund Services, LLC.
