WINN - WINN: Winning In The Short Run

2023-12-06 07:10:31 ET

Summary

• The Harbor Long-Term Growers ETF has an impressive YTD return of 45.9%. However, 'since inception' returns are weak.
• The WINN ETF has benefited from large bets on the Magnificent 7 stocks and weight loss winners. However, longer term, the underlying Jennison growth strategy has underperformed its benchmark.
• Compared to the 'boom-bust' nature of WINN's returns, I prefer the steadier SPGP ETF that combines growth and value investing into a single 'GARP' fund.

The Harbor Long-Term Growers ETF's (WINN) impressive YTD returns of 45.9% recently caught my attention, as it is within the top decile of Large-Cap Growth funds.

However, I am concerned about WINN's 'boom-bust' returns profile, as the fund has been outperforming by betting heavily on the 'Magnificent 7' stocks and the underlying strategy lost an eye-watering 37.9% in 2022. Furthermore, although Jennison's long-term performance has been solid, it has nonetheless underperformed the Russell 1000 Growth Index over a 3/5/10-year timeframe.

Fund Overview

The Harbor Long-Term Growers ETF is an actively managed ETF offered by Harbor Capital, a fund distributor that aims to provide access to a curated lineup of boutique investment managers (Figure 1).

The WINN ETF is managed by Jennison Associates, a New York-based investment manager known for its research-centric investment expertise in "identifying companies with sustainable competitive advantages and long-term growth potential" (Figure 2).

The WINN ETF offers investors exposure to Jennison's flagship large-cap growth strategies in an ETF wrapper. WINN has $224 million in assets and charges a 0.57% expense ratio.

Portfolio Holdings

As a growth-focused strategy, the WINN ETF's sector allocation is heavily weighted towards the Information Technology and Consumer Discretionary sectors with 42.3% and 21.3% sector weights, respectively (Figure 3). Relative to its benchmark, the Russell 100 Growth Index, WINN is overweight Consumer Discretionary and underweight Industrials.

The WINN ETF is a very concentrated fund, with 63 holdings and the top 10 holdings accounting for 56.9% of the portfolio (Figure 4).

WINN's top 10 holdings are heavily represented by recent market darlings, the 'Magnificent 7' with Meta Platforms, Inc. ( META ) being the only Magnificent 7 stock not in the top 10. WINN also holds two recent healthcare winners, Eli Lilly & Co. ( LLY ) and Novo Nordisk ( NVO ), both of whom are benefiting from cult-like investor focus on their GLP-1 weight loss drugs.

Distribution & Yield

The WINN ETF paid a nominal $0.01 distribution in 2022 and investors should not look for meaningful distributions from this fund.

Returns

As mentioned above, what attracted me to review the WINN ETF was its strong short-term performance, with the WINN ETF delivering a phenomenal 45.9% YTD return to November 30, 2023 (Figure 5).

However, the WINN ETF also had a large drawdown in 2022, its inception year, leaving it with a modest 1.4% annualized return since inception.

Given WINN's limited operating history, how should investors judge its performance?

Although the WINN ETF does not have a long operating history, Jennison, the investment advisor, has been managing growth strategies for over 5 decades. For example, Jennison manages the PGIM Jennison Growth Fund (PJFAX) with a history dating back to the 1990s, so we can review the historical performance of the PJFAX fund to get a sense of how the WINN ETF may perform over the long run (Figure 6). The PJFAX fund has delivered similar YTD and 1-year performance compared to the WINN ETF and their holdings are largely similar.

Over the long run, PJFAX has delivered 3/5/10/15Yr average annual returns of 3.2%/14.9%/13.7%/15.7% respectively to November 30, 2023. This compares well with 9.7%/12.4%/11.7%/13.6% for the SPDR S&P 500 ETF Trust ( SPY ) over the same timeframes (Figure 7).

Comparing annual returns, it must be mentioned that the PJFAX fund has a 'boom-bust' returns profile, characteristic of growth-only funds, with 5 of the past 11 years (including YTD 2023) having returns greater than 30% and 3 negative years, including 2022, when the PJFAX fund lost an eye-watering 37.9%.

Furthermore, if we compare PJFAX against its benchmark, the Russell 1000 Growth Index, PJFAX has actually underperformed over the long run (Figure 8).

Investors can get low-cost exposure to the Russell 1000 Index via the iShares Russell 1000 Growth ETF (IWF), which only charges a 0.19% expense ratio.

WINN vs. Peers

In fact, the WINN ETF looks very similar to another growth-oriented fund I recently reviewed , the T. Rowe Price Blue Chip Growth ETF (TCHP). Both funds are modeled after long-operating growth mutual funds, the PJFAX and TRBCX respectively. Also, both funds share similar downsides, namely a 'boom-bust' returns profile (Figure 9).

Similar to my criticism of the TCHP ETF, I believe the Invesco S&P 500 GARP ETF ( SPGP ) may be a better 'growth' fund in the long run, as it combines growth and value investing strategies into one fund. Although SPGP does not have the spectacular 1-year return of the growth-oriented funds, it also did not have the large drawdowns in 2022 that growth-oriented strategies like PJFAX and TRBCX experienced.

This gives SPGP a better long-term returns CAGR and may allow investors to 'sleep better at night', given SPGP had significantly lower drawdowns and better risk-adjusted returns (Figure 10).

Conclusion

The WINN ETF is modeled after Jennison's longstanding PGIM Jennison Growth Fund. It has delivered phenomenal short-term returns as its top 10 holdings are dominated by the Magnificent 7 and the weight-loss darlings LLY and NVO.

However, if we analyze Jennison's long-term returns, we find that it has a distinctive 'boom-bust' returns profile, characteristic of growth-only funds. Furthermore, the PGIM Jennison Growth Fund has underperformed the Russell 1000 Growth Index over the long run.

If investors are purely interested in growth, they may be better served with a low-cost passive ETF like the iShares Russell 1000 Growth ETF. Alternatively, I believe a better 'growth' fund may be the Invesco S&P 500 GARP ETF which combines both growth and value strategies into one fund.

I rate the WINN ETF a hold .

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