Capital Group's 'Acorns to Oaks' ETF: Targeting Small and Mid-Cap Growth

Capital Group, a renowned investment management firm, has introduced the 'Acorns to Oaks' ETF strategy, focusing on small and mid-cap growth companies. This actively managed ETF seeks long-term capital appreciation by investing in U.S. companies with market capitalizations typically falling within the range of the Russell 2500 Index or Russell Midcap Index. The fund's portfolio managers, with a combined experience of 11 to 26 years with Capital Group and 20 to 33 years in the investment industry, leverage deep fundamental research to identify potential "acorns to oaks" companies with attractive opportunities for long-term compounding.



The 'Acorns to Oaks' strategy differs from traditional passive indexing and other actively managed ETFs in several ways. First, it applies deep fundamental research to identify potential companies with long-term growth potential, much like an acorn has the potential to grow into a mighty oak tree. Second, the strategy focuses on a narrower range of market capitalizations, investing in companies with market capitalizations of up to $10 billion. Third, the fund is managed as a core investment strategy, leveraging more than 100 investment analysts contributing research to help portfolio managers identify attractive investment opportunities.

The Capital Group U.S. Small and Mid Cap ETF (CGMM) has an expense ratio of 0.51%, which is relatively low compared to other actively managed ETFs in the small and mid-cap growth category. According to Morningstar, the average expense ratio for actively managed mid-cap growth funds is around 0.85% (as of 2025). This means that CGMM's expense ratio is approximately 40% lower than the average for actively managed funds in this category. When comparing CGMM's expense ratio to passive index funds, it is important to note that passive funds typically have lower expense ratios due to their index-tracking nature. For example, the Vanguard Mid-Cap Growth ETF (VGM) has an expense ratio of 0.07%, which is significantly lower than CGMM's expense ratio. However, it is essential to consider that passive funds do not have the potential for active management and stock-picking, which can lead to higher returns.

The lower expense ratio of CGMM can have a positive impact on potential returns for investors. According to a study by Vanguard, a 1% difference in expense ratios can result in a 20% difference in returns over a 30-year period, assuming an annualized return of 7%. In the case of CGMM, its 0.51% expense ratio is 0.34% lower than the average expense ratio of actively managed mid-cap growth funds. This difference could potentially lead to a significant improvement in long-term returns for investors.

Additionally, the lower expense ratio of CGMM can help to preserve capital and reduce the impact of fees on overall returns. This can be particularly beneficial for investors with a long-term investment horizon, as the compounding effect of lower fees can lead to higher overall returns over time.

In conclusion, Capital Group's 'Acorns to Oaks' ETF strategy offers investors an actively managed approach to investing in small and mid-cap growth companies. With a low expense ratio and a focus on long-term growth potential, the strategy has the potential to generate attractive returns for investors seeking long-term capital appreciation.