Active Value Management in Volatile Markets: The Case for Capital-Cycle Agility and Quality Screening

In a market environment defined by rapid shifts between growth and value cycles, active value management faces a dual challenge: adapting to macroeconomic volatility while maintaining disciplined quality criteria. The Hartford Quality Value ETF (QUVU) offers a case study in how even well-structured active strategies can falter when execution lags behind evolving market dynamics. As of August 2025, QUVU's underperformance against its Russell 1000 Value benchmark and the Morningstar Large Value Category underscores the critical role of capital-cycle agility and quality screening in capturing alpha during value-led cycles.

The QUVU Dilemma: Strategy vs. Execution

QUVU, launched in 2023, is designed to capitalize on undervalued large-cap U.S. stocks with consistent cash flows, strong dividends, and defensive characteristics. Its sub-advisor, Wellington Management, employs capital-cycle analysis to time buy, hold, and sell decisions, aiming to align the portfolio with macroeconomic shifts. However, QUVU's performance in 2025—returning 2.38% year-to-date (YTD) as of July 31, compared to the benchmark's 6.61%—reveals a persistent execution gap. This underperformance is not unique to QUVU; active value managers broadly trailed passive peers by an average of 1.55% over the trailing twelve months.

The root cause lies in the market's structural tilt toward growth. The Russell 3000 Growth Index surged 13.71% in Q2 2025, while the Russell 1000 Value Index advanced just 3.84%. Even as QUVU's portfolio includes quality dividend payers like Bank of America and Philip Morris International, these holdings struggled to outperform in a landscape where growth stocks—many reclassified into value categories due to evolving valuations—dominated. This highlights a key challenge: active strategies must not only identify quality but also time their exposure to capital cycles with precision.

Capital-Cycle Agility: A Differentiator in Volatile Markets

Capital-cycle analysis, a cornerstone of QUVU's strategy, involves adjusting portfolio allocations based on macroeconomic signals such as interest rates, geopolitical risks, and sector rotations. Theoretically, this approach allows active managers to pivot between defensive and cyclical positions. However, QUVU's Q2 2025 return of 4.24% versus the benchmark's 4.69% suggests that its execution of this framework has been insufficiently agile.

For example, while the fund's top holdings—Alphabet, Wells Fargo, and Simon Property Group—reflect a balance of yield and growth potential, their underperformance against the benchmark indicates a misalignment with the current capital cycle. In a growth-dominated market, investors favor companies with scalable revenue models and high reinvestment rates, even if their valuations stretch traditional value metrics. QUVU's focus on cash flow and dividends, while prudent in defensive environments, has not translated into competitive returns when growth stocks are in favor.

Quality Screening: Beyond Passive Index Metrics

QUVU's emphasis on quality screening—assessing profitability, cash flow, and management efficiency—should, in theory, provide an edge over passive benchmarks. Yet, its underperformance suggests that quality alone is not enough. Passive indices like the Russell 1000 Value include high-quality dividend payers in sectors such as Financials and Utilities, which QUVU also targets. The differentiator lies in the active manager's ability to screen for superior quality metrics beyond what passive indices capture.

For instance, QUVU's inclusion of Philip Morris International—a company with consistent cash flows and a strong balance sheet—aligns with its quality criteria. However, in a market where investors prioritize reinvestment over dividends, such holdings may underperform. This underscores the need for active managers to refine their quality screens to include forward-looking metrics, such as innovation pipelines or ESG alignment, which can enhance resilience during growth-led cycles.

The Case for Active Value in a Shifting Landscape

Despite QUVU's challenges, active value management retains a compelling role in diversified portfolios. When macroeconomic conditions shift—such as during periods of rising interest rates or geopolitical uncertainty—value stocks historically outperform. Active strategies that combine capital-cycle agility with disciplined quality screening can capture this alpha, provided they are executed with precision.

Investors should prioritize active managers who:
1. Adapt to capital cycles: Adjust sector allocations and security selections in response to macroeconomic signals.
2. Refine quality criteria: Incorporate forward-looking metrics like innovation, ESG, and reinvestment rates.
3. Balance yield and growth: Avoid overconcentration in defensive sectors during growth-led cycles.

QUVU's experience highlights the importance of execution. While its strategy is sound, its underperformance in 2025 demonstrates that even robust frameworks require continuous refinement. For investors seeking active value exposure, the key takeaway is to focus on strategies that demonstrate both macro-aware positioning and disciplined quality screening—qualities that can deliver resilience and outperformance when value cycles return.

In a world of persistent macroeconomic uncertainty, active value management remains a valuable tool. However, its success hinges on the ability to adapt to shifting market dynamics and execute with precision. QUVU's journey serves as a reminder that while strategy is foundational, execution is the ultimate determinant of performance.