LCF: This Large-Cap Focused ETF Can't Overcome Its Own High Fees

Summary

• LCF is an actively managed high-conviction large-cap fund with a 0.56% net expense ratio and $47 million in assets under management. Its benchmark is the S&P 500 Index.
• The ETF only launched three years ago, but the fund's sub-advisor has implemented the strategy through its mutual funds and separately managed accounts since October 2013.
• My fundamental analysis reveals a portfolio with solid growth-at-a-reasonable-price features, though LCF's 58% active share with SPY should be higher.
• It means this 58% must work extra hard to consistently outperform SPY to cover the extra fees, something the strategy was unable to do over the last ten years.
• Overall, LCF is well constructed but doesn't demonstrate enough to justify deviating from simple S&P 500 Index ETFs.

Andrii Yalanskyi

Investment Thesis

The Touchstone US Large Cap Focused ETF (BATS:LCF) selects 25-45 stocks believed to be trading below their intrinsic values. The strategy might sound familiar, and like other active funds, LCF has a costly 0.56% expense ratio (1.29% before waivers). On its

Analyst’s Disclosure:I/we have a beneficial long position in the shares of SPY either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.