Why CGUS Outperforms the S&P 500 and Why Investors Should Act Now

In the ever-evolving landscape of U.S. equities, the Capital Group Core Equity ETF (CGUS) has emerged as a compelling alternative to the S&P 500 benchmark. While passive strategies like Vanguard's VOO dominate headlines, CGUS's active management, balanced factor exposure, and focus on long-term capital preservation are quietly reshaping the narrative. For investors seeking a diversified, high-conviction approach to equity investing, the time to act is now.

The Power of Active Management: A Multi-Manager Edge

CGUS's active management strategy is rooted in Capital Group's multi-manager framework. Unlike passive ETFs that mirror the S&P 500, CGUS leverages a team of four seasoned portfolio managers with 119 combined years of experience. This collaborative yet flexible approach allows the fund to dynamically adjust sector allocations and stock selections based on real-time market conditions. For instance, while the S&P 500 is heavily weighted toward technology (26.8% in CGUS vs. 30.6% in VOO), CGUS strategically reduces exposure to overvalued tech giants and increases allocations to industrials (14.8% vs. 8.1% in VOO) and international equities (up to 15%). This diversification not only mitigates sector-specific risks but also positions the fund to capitalize on market rotations.

The fund's active stock-picking prowess is evident in its top holdings, which include high-conviction names like Raytheon Technologies (RTX) and GE Aerospace (GE), alongside tech darlings like Microsoft and Nvidia. These selections reflect a disciplined focus on companies with strong competitive advantages and sustainable cash flows. Analysts have noted that nine of CGUS's top 10 holdings carry “Outperform” ratings from TipRanks, underscoring the quality of its active management.

Factor Balance: Growth, Income, and Risk Mitigation

CGUS's success lies in its harmonious blend of growth and income factors. While the S&P 500 leans heavily on growth-oriented tech stocks, CGUS balances this with a focus on high-quality dividend payers and industrials. This dual emphasis creates a portfolio that thrives in both bull and bear markets. For example, during the July 2025 market rebound, CGUS surged 3.4%—outpacing the 1.7% average return of its Large Blend category—by capitalizing on its diversified holdings.

The fund's risk profile further strengthens its appeal. Despite a slightly higher volatility (3.42% vs. VOO's 3.02%), CGUS has historically experienced smaller drawdowns (-21.86% vs. VOO's -33.99%) and a lower ulcer index (4.85% vs. 4.76%), indicating smoother returns for investors. This balance is achieved through active risk management, including tactical shifts in sector exposure and a focus on companies with robust balance sheets.

Long-Term Capital Preservation: A Hedge Against Uncertainty

In 2025, macroeconomic uncertainties—ranging from inflationary pressures to geopolitical tensions—demand a strategy that prioritizes capital preservation. CGUS's active management allows it to pivot quickly, reducing exposure to vulnerable sectors and increasing allocations to defensive holdings. For instance, its international exposure to lower-valued stocks like British American Tobacco (BTI) and Canadian Natural Resources (CNQ) provides diversification and potential upside if global markets stabilize.

Moreover, CGUS's expense ratio of 0.33% is justified by its long-term performance. Over three years, the fund has delivered an annualized return of 18.51%, outperforming VOO's 16.44%. While fees are higher than passive alternatives, the fund's ability to adapt to market cycles and generate alpha makes it a cost-effective choice for investors with a 5–10 year horizon. Analysts project a 36.5% upside potential, driven by its active strategy and current undervaluation relative to the S&P 500.

Why Act Now?

The case for CGUS is strongest in today's market environment. With the S&P 500 facing valuation pressures and interest rate uncertainty, CGUS's diversified, active approach offers a hedge against volatility. Its recent outperformance—29.5% total return vs. VOO's 27.2% over the past year—demonstrates its ability to thrive in challenging conditions. For investors seeking a core holding that balances growth and income while preserving capital, CGUS provides a compelling solution.

In conclusion, CGUS's active management, factor balance, and risk-mitigated strategy position it as a superior alternative to passive benchmarks. While no fund is immune to market downturns, its disciplined approach and high-conviction holdings make it a standout choice for long-term investors. The time to act is now—before the market fully recognizes its potential.