Although there have been a rash of index-based ETF closures as of late, companies still appear to be plowing ahead when it comes to actively managed products. This space has been more immune from the closure epidemic than most, as many companies—including ‘traditional’ providers who have focused on index products—have jumped on the active ETF bandwagon as well.
One of the top providers in this active space has been AdvisorShares, a Maryland-based firm that specializes in non-index tracking products. It has been a great example of the active ETF proliferation here in 2012, as the company has released half a dozen products so far this year, marking over a 50% increase in total products for the firm (see Three Outperforming Active ETFs).
If that wasn’t enough, the company has just revealed the latest addition to its lineup with a brand new multi-asset product, the Pring Turner Business Cycle ETF (DBIZ - ETF report). This fund looks to take a multi-asset approach that uses a fund-of-funds structure in order to dynamically allocate among a variety of securities to become a core total return pick for conservative investors.
This looks to be done by using the insights from the Pring Turner Capital Group and two of the two managers of the firm Joe Turner and Martin Pring. Their research focuses in on the business cycle and divides it into ‘Six-Stages’ with different investment philosophies—and sectors to tilt towards and away from—in each of the six distinct market environments (see 3 Multi-Asset ETFs for Juicy Yields and Stability).
“We are very pleased to launch DBIZ, a strategy derived from Martin Pring’s renowned investment research on business cycles and financial market trends,” said Noah Hamman, CEO of AdvisorShares in a press release. “All Chartered Market Technicians (CMT) can attest to Martin’s depth of knowledge because his book “Technical Analysis Explained” is required reading for the professional CMT designation.”
Noah continued, “We believe investors now have the accessibility to a unique and proprietary dynamic asset allocation strategy with the benefits of an actively managed ETF delivered by an experienced investment management team.”
Basically, bonds are favored during early periods of economic contraction while they are shunned during the early part of an expansionary period. Stocks should be bought, according to their model, at the nadir of a contraction, and the sold at an expansion’s peak. Lastly, inflation sensitive securities come into play during late stages of a contraction, and then are advised to be sold out during the end of a boom period.
The approach also looks to take a conservative asset allocation strategy, selecting securities based on quality, value, and ability to generate income. Furthermore, technical analysis tools are also applied in order to further increase risk adjusted returns (read Three Overlooked Active ETFs).
The approach sounds interesting, but investors should note that fees are a little higher than what they might be used to in index based products, as the net expense ratio comes in at 1.62%, thanks in part to the fund-of-funds structure and the other/acquired fund fees. Volume might be light for the product initially as well, so bid ask spreads may be wide, although the underlying securities’ liquidity could keep this at a manageable level (see more on Multi-Asset ETFs here).
In terms of the portfolio, at least at time of writing, the ETF was relatively spread out, although there was a heavy focus on stocks. Domestic securities account for 36% of the portfolio, international at 33%, and then fixed income (high yield) and cash rounding out the rest, although it is important to remember that with the active strategy this could change quickly.
Active ETFs Overall
While DBIZ certainly brings something new to the table, active ETFs have definitely been hit or miss overall in terms of generating AUM. Some have seen great success despite an outsized expense ratio, so the real test will be if the Pring Turner name can attract diehard investors who believe in their business cycle methodology.
If it can, DBIZ could definitely be another success for AdvisorShares and their lineup of active ETFs. However, competition is relatively strong in the multi-asset market—although admittedly indirect—with recently launched funds like (PERM - ETF report), (GAL - ETF report), and (INKM - ETF report), acting as potentially fierce foes in the space. This suggests that it will be an interesting 2013 for ETF firms as these battle for investor dollars in this increasingly important corner of the Exchange-Traded Fund world.
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