Reassessing the Case for Active Value Management: Lessons from Hartford Quality Value ETF's Q2 2025 Performance

In a year marked by geopolitical uncertainty, shifting monetary policy, and divergent performance between growth and value equities, the Hartford Quality Value ETF (QUVU) offers a compelling case study for reevaluating the role of active value management. Despite its disciplined approach—centered on consistent cash flows, undervalued leaders, and quality dividend payers—QUVU underperformed its passive benchmark, the Russell 1000 Value TR USD, in Q2 2025. This raises critical questions: Can active value strategies still deliver alpha in a volatile macro environment? And what lessons can investors draw from QUVU's performance to refine their approach?

The Active vs. Passive Divide in a Volatile Market

QUVU's Q2 2025 return of 4.24% lagged the Russell 1000 Value TR USD's 4.69%, a -0.45% relative underperformance. Over the year-to-date (YTD) and trailing twelve months (TTM), the gap widened further, with QUVU trailing by -0.31% and -1.55%, respectively. These results align with broader trends: large-cap value active managers underperformed their passive peers by an average of 1.55% over the past year. Yet, QUVU's strategy—rooted in capital-cycle analysis and quality dividend payers—highlights a nuanced argument for active management in specific market conditions.

Passive benchmarks like the Russell 1000 Value TR USD rely on rules-based inclusion of large- and mid-cap U.S. value stocks, many of which are dividend payers. However, their static composition can leave them vulnerable to structural shifts. For instance, the 2025 rebalance saw portions of Alphabet, Meta, and Amazon added to the Value Index, reflecting evolving valuations and dividend policies. While this broadens the index's scope, it also underscores the challenge of capturing dynamic market transitions—a domain where active managers can add value.

Capital-Cycle Analysis: A Differentiator in Active Value Management

QUVU's sub-advisor, Wellington Management, emphasizes capital-cycle analysis to time buy, hold, or sell decisions. This approach allows the fund to align with macroeconomic cycles, a critical advantage in volatile environments. For example, in Q2 2025, while the Russell 1000 Value Index advanced 3.84%, the Russell 3000 Growth Index surged 13.71%, reflecting a broader market tilt toward growth. Active managers like QUVU can adjust sector allocations and security selection to mitigate such imbalances, though QUVU's Q2 performance suggests execution gaps.

Capital-cycle analysis also enables active managers to identify undervalued leaders in out-of-favor industries. QUVU's portfolio includes positions in Bank of America, Wells Fargo, and Philip Morris International—companies with strong cash flows and defensive characteristics. These holdings align with the fund's focus on quality and resilience, yet their underperformance relative to the benchmark highlights the need for tighter alignment with capital-cycle dynamics.

Quality Dividend Payers: A Pillar of Active Value Strategies

Dividend-paying stocks are a cornerstone of QUVU's strategy, offering income stability and downside protection. The fund's recent distribution of $0.9537 per share, with $0.5251 classified as ordinary income, underscores its emphasis on income generation. However, passive benchmarks like the Russell 1000 Value TR USD also include high-quality dividend payers, such as those in the Financials and Utilities sectors. The key differentiator lies in active managers' ability to screen for superior quality metrics—such as profitability, cash flow, and management efficiency—beyond what passive indices capture.

For instance, QUVU's inclusion of Alphabet (Class A) and Simon Property Group reflects a focus on companies with strong fundamentals, even as the broader market reclassifies tech giants like Amazon into the Value Index. Active managers can leverage such insights to construct portfolios that balance yield with growth potential, a strategy that may outperform passive benchmarks during market corrections.

Lessons for Investors: Balancing Discipline and Flexibility

QUVU's performance underscores the importance of disciplined active management in volatile markets. While passive strategies offer low-cost exposure to value equities, they lack the agility to adapt to shifting capital cycles or capitalize on emerging opportunities. Active managers, by contrast, can adjust portfolios to reflect macroeconomic signals, such as rising interest rates or geopolitical risks. However, success hinges on execution: QUVU's underperformance highlights the need for tighter alignment between strategy and market realities.

Investors seeking active value exposure should prioritize funds with robust capital-cycle frameworks and a clear edge in quality screening. QUVU's focus on dividend payers and undervalued leaders is a step in the right direction, but its performance suggests that even well-structured active strategies require continuous refinement.

Conclusion: Active Value's Role in a Diversified Portfolio

The Hartford Quality Value ETF's Q2 2025 performance serves as a cautionary tale and a learning opportunity. While active value strategies face headwinds in a growth-dominated market, they retain a critical role in capturing alpha during value-led cycles. By combining disciplined capital-cycle analysis with a focus on quality dividend payers, active managers can navigate volatility and deliver long-term outperformance. For investors, the key takeaway is clear: in a world of persistent macroeconomic uncertainty, active value management remains a valuable tool—when executed with precision and adaptability.