Hotchkis & Wiley Expands Active ETF Footprint with New Share Class Conversions

In a strategic pivot designed to modernize its distribution model, Los Angeles-based investment firm Hotchkis & Wiley (H&W) officially debuted ETF share classes for two of its flagship investment strategies on July 22. By introducing the Hotchkis & Wiley International Value ETF (HWIV) and the Hotchkis & Wiley Opportunities ETF (HWO) to the public markets, the firm is effectively bridging the gap between traditional mutual fund management and the high-growth, tax-efficient ETF landscape.

This move marks a significant evolution for a firm historically rooted in long-only, fundamental value investing. By leveraging the "ETF share class" structure—a mechanism that allows a mutual fund and an ETF to operate as different share classes of the same underlying portfolio—Hotchkis & Wiley is providing its existing investor base with the benefits of intraday liquidity and the structural tax advantages inherent to the ETF wrapper, all while maintaining the integrity of their time-tested investment philosophies.

Core Mechanics: The Strategic Shift

The launch of these two funds brings the firm’s total ETF lineup to three, following the earlier successful introduction of the Hotchkis & Wiley SMID Cap Diversified Value Fund (HWSM).

For institutional and retail investors alike, the appeal of these new share classes lies in their dual-nature convenience. Investors now gain access to the exact same asset pools that have defined the firm’s performance for years, but with the added flexibility of trading on an exchange throughout the day. The expense ratios for these new offerings are set at 70 basis points for the International Value strategy and 90 basis points for the Opportunities strategy.

While the expense ratios are competitive for active management, they reflect the firm’s commitment to high-conviction, bottom-up research, which necessitates deep operational overhead and skilled portfolio management teams.

Chronology of Expansion

The timeline of Hotchkis & Wiley’s transition into the ETF space reflects a broader industry trend where legacy asset managers are increasingly feeling the "ETF squeeze."

• Initial Entry: The firm began its foray into the exchange-traded product market with the HWSM, targeting the small- and mid-cap space. This served as a "proof of concept" for the firm, confirming that their active management style could successfully translate to a transparent, daily-disclosed ETF format.
• Strategic Evaluation (2025–2026): Throughout the preceding 18 months, the firm evaluated the shifting preferences of advisors and platforms who increasingly favor the tax-efficient nature of ETFs—specifically the ability of ETFs to minimize capital gains distributions through "in-kind" redemptions.
• The July 22 Launch: The simultaneous launch of HWIV and HWO signals a "scaling up" phase, where the firm is no longer just experimenting with a single product but is instead integrating the ETF wrapper into its broader business model.

Deep Dive: Targeting Global Value and Special Situations

The two new funds represent the distinct "DNA" of the Hotchkis & Wiley research engine.

The International Value Strategy (HWIV)

HWIV focuses on a concentrated portfolio of 40 to 80 companies located outside the United States. The strategy prioritizes businesses with durable competitive advantages and shareholder-friendly management teams. As of the most recent reporting, the portfolio is anchored by significant exposure to the financial sector (17.7%) and the industrial sector (14.3%). By focusing on undervalued international names, the strategy seeks to capture global market inefficiencies that often get overlooked by index-tracking funds that overweight the largest, most visible global entities.

The Opportunities Strategy (HWO)

The HWO fund is defined by its mandate to invest in 45 to 75 undervalued issuers, often leaning into "special situations." This includes complex positions such as merger arbitrage, preferred stocks, and fixed-income securities.

A notable aspect of HWO’s current positioning is its aggressive tilt toward the information technology sector, which comprises 27.2% of the portfolio. A focal point of this strategy is Workday Inc. (WDAY), which currently accounts for an 11.7% portfolio weight. Despite a challenging 2026 for the stock—during which it declined by approximately 34%—Hotchkis & Wiley’s research team maintains a bullish outlook, citing accelerating revenue growth and robust free cash flow generation as indicators that the market has mispriced the asset.

Performance Analysis: The High-Conviction Edge

The performance of these funds is a testament to the firm’s commitment to high-conviction stock selection over passive tracking.

HWIV Performance Metrics

As of June 30, the International Value strategy boasted an annualized three-year return of 22.2%. This performance effectively outpaces the VettaFi Full World Ex US Index, which returned 19.5% over the same period. This outperformance is largely attributed to the firm’s active security selection, which avoids the "bloat" of broad market indices and focuses instead on companies undergoing specific, positive catalysts.

HWO Performance Metrics

The Opportunities strategy posted an annualized three-year return of 15.4% as of June 30. While this figure trails the VettaFi US Enhanced Value Index (19.5%) for the same timeframe, the firm emphasizes that the fund is not intended to track value benchmarks. Instead, HWO’s performance is driven by its idiosyncratic bets in special situations, which often do not correlate perfectly with the broader market’s "value" cycle.

The Implications of the ETF Wrapper

The transition of these mutual funds into ETF share classes has profound implications for the wealth management industry.

1. Tax Efficiency as a Product Feature

One of the primary drivers for this transition is the tax-efficient nature of the ETF structure. In a traditional mutual fund, when shareholders redeem their positions, the fund may be forced to sell securities, potentially triggering capital gains taxes for the remaining investors. In the ETF share class model, the "in-kind" creation and redemption process allows the fund to exchange securities with authorized participants without triggering immediate tax events, offering a cleaner tax profile for long-term holders.

2. Democratizing Active Management

For years, the "active vs. passive" debate has raged, with passive index funds winning on cost and performance transparency. By moving into the ETF wrapper, firms like Hotchkis & Wiley are essentially saying that active management does not need to be opaque or tax-inefficient. They are stripping away the "legacy friction" of the mutual fund model, making their active research accessible to the next generation of digital-first investors.

3. The Future of Distribution

As more asset managers adopt this dual-share-class structure, we are likely to see a decline in the dominance of the traditional mutual fund. Institutional platforms are increasingly demanding the liquidity of ETFs. Hotchkis & Wiley’s latest move confirms that the firm is positioning itself to be a long-term player in this new era of asset management, where transparency and tradeability are as important as the underlying investment performance.

Conclusion: A New Chapter for Hotchkis & Wiley

The launch of the HWIV and HWO ETF share classes is not merely a product expansion; it is a fundamental shift in how Hotchkis & Wiley interacts with the modern investor. By combining the rigor of their fundamental value philosophy with the structural advantages of the ETF wrapper, the firm is successfully navigating the headwinds facing the traditional active management industry.

As the market continues to evolve, the ability to offer active, high-conviction strategies in a flexible, tax-efficient format will likely become the "table stakes" for any firm looking to remain relevant. With three ETFs now in their arsenal, Hotchkis & Wiley has clearly signaled its intention to remain a vital participant in this transition, ensuring that their deep-dive, bottom-up investment approach remains at the fingertips of investors across the globe.

Investors and financial advisors are encouraged to monitor how these new ETFs track against their mutual fund counterparts as they establish their independent trading history, as this data will likely dictate the next wave of "share class" conversions across the wider financial sector.