Clough Select Equity ETF (CBSE)

The Clough Select Equity ETF trades under the ticker CBSE on the NASDAQ and represents one of the market’s approaches to active management within an exchange-traded wrapper. Unlike passively indexed funds that simply track a predetermined benchmark by buying all its holdings, CBSE employs a manager to make individual stock-selection decisions, charging a fee for that judgment. The fund targets investors who believe that skilled stock-picking can outperform market averages and who prefer the trading flexibility and transparency of an ETF over a traditional mutual fund.

The Shift to Active Management in ETFs

The rise of low-cost index funds transformed the industry over the past two decades, but a persistent challenge remained: many investors and professionals believed that careful stock selection could still beat the market. Traditional actively managed mutual funds, burdened by higher fees and less transparency, gradually lost ground. The emergence of actively managed ETFs in the 2000s represented an attempt to combine the manager’s judgment with the ETF’s structure—lower costs than mutual funds, intraday trading, and the ability to see holdings daily.

Clough Capital Partners launched the Clough Select Equity ETF to compete in this space. The fund’s existence reflects ongoing conviction that systematic security selection, applied with discipline, could identify stocks trading below their intrinsic value or positioned to grow faster than the market expects. The fund operates with the flexibility to hold securities of any market capitalization, though its name and positioning suggest a focus on smaller and mid-sized companies where information asymmetries might offer more opportunity for skilled analysis.

How the Fund Selects and Holds Its Portfolio

The fund’s strategy centers on identifying securities with what the manager describes as above-average financial characteristics. This typically means looking for companies with strong balance sheets, efficient capital allocation, or earnings growth that is not yet fully reflected in the stock price. The manager seeks stocks that are undervalued relative to their fundamental worth or have growth potential that the broader market has overlooked.

Under normal circumstances, the fund invests at least 80 percent of its net assets in equity securities, including common stocks and depositary receipts such as American Depositary Receipts (ADRs). This flexibility to use depositary receipts allows the fund to access foreign companies listed on US exchanges, broadening the investable universe while maintaining US-traded liquidity. The portfolio typically holds around 41 individual positions, which provides meaningful diversification while remaining concentrated enough to reflect the manager’s core convictions.

The allocation reflects a pragmatic split: roughly 83 percent of the fund’s assets are deployed in domestic stocks, while approximately 16 percent go to foreign stocks, predominantly through depositary receipts. This weighting suggests the manager views the US equity market as presenting more opportunity, though the fund maintains exposure to international securities rather than confining itself entirely to domestic names.

The Cost of Active Management and its Tradeoffs

An active ETF must justify its existence through outperformance. Index funds charge expense ratios measured in basis points—often 0.05 to 0.20 percent annually—because they simply hold the benchmark. An actively managed fund like CBSE charges substantially more to cover the manager’s team, research, and trading costs. That fee must be earned back through superior returns before the investor comes out ahead.

The fund’s cost structure reflects this reality. More expensive than a broad US equity index fund, the fee structure is nonetheless competitive for an active manager. The tradeoff is explicit: pay more in fees, potentially receive skilled stock selection that exceeds a benchmark return.

What Makes CBSE Different from the Broader Market

Most US equity investors own the market through broad index funds that track the S&P 500 or the total US market. These funds achieve returns that match the market by definition, minus a tiny fee. The Clough Select Equity ETF implicitly bets that the manager can do better by choosing a smaller subset of stocks—ones with stronger fundamentals or more attractive valuations than the average index constituent.

The fund’s lower volatility objective (capturing less downside in market declines than the broad market experiences) suggests the manager may favor higher-quality businesses—those with stable earnings and strong competitive positions—over high-momentum or highly cyclical stocks. This stability can appeal to investors uncomfortable with the full swing of market volatility, though the cost is potentially missing sharp rallies in more speculative sectors.

How an Investor Would Research CBSE

Anyone considering the Clough Select Equity ETF should examine several key pieces of information. The fund’s prospectus and fact sheet, available from Clough Capital’s website, detail the investment strategy and fee structure. Morningstar and other fund research platforms provide historical performance data against relevant benchmarks—typically the Russell 2000 (for small-cap stocks) or broader equity indices depending on the fund’s actual portfolio composition.

Comparing CBSE’s returns to a low-cost passive alternative is essential. If the fund has underperformed a broad US equity index fund over a three-to-five-year period after fees, the case for active management weakens. Conversely, if it has meaningfully outperformed with less volatility, the higher fee may be justified. The fund’s top holdings reveal the manager’s current convictions, and watching whether concentration in these positions increases or decreases shows how confident the manager is in their picks.

The daily transparency of an ETF—seeing the full portfolio at any time—allows investors to verify that the fund is actually pursuing the stated strategy and to assess the quality of businesses held. Reading the manager’s quarterly letters or commentaries, where available, provides insight into the decision-making process and how the manager is thinking about current market conditions.