AdvisorShares, the Bethesda, Maryland-based ETF issuer and leader in the active fund space, has just released its latest product, the AdvisorShares Global Alpha & Beta ETF . The new fund marks the 15th active ETF from the Bethesda, Maryland-based issuer and just the ninth equity product overall from the company (read Three Outperforming Active ETFs).
The product is also the first exchange-traded fund to be managed by Your Source Financial, an Arizona-based advisory firm run by Roger Nusbaum. Roger has achieved a decent level of fame through his blog ‘Random Roger’s Big Picture’ so it is interesting to see that he has been able to parlay this success into an actual product launch.
The fund looks to invest in a diversified mix of global assets and it intends to beat out major indexes such as a (60/40 split among) the S&P 500 and the BarCap Aggregate Bond Index. This looks to be done by lowering volatility levels and mitigating risk, using a top-down approach of tactical assets plays and the firm’s proprietary security selection process (read HDGE: The Active Bear ETF under The Microscope).
This process consists of multiple steps and first starts with moving average and yield curve analysis. The product looks at the 200-day moving average and for an inverted yield curve in order to decide if a shift to stocks or bonds should be made, hopefully avoiding the worst performances during down market periods with this approach.
After this analysis is done, the manager then looks at the market from a sector perspective, determining which of the 10 S&P 500 sectors the fund should be overweight or underweight in. Beyond this, a look at fundamental analysis is also done in order to build up some core holdings, focusing in on valuation, earnings, yield, and peer comparison (read Five ETFs to Buy in 2012).
The portfolio’s process doesn’t stop there, however, as the manager then tries to add a few satellite holdings in order to provide the ETF with more diversification, yield, or insurance in a down market. These auxiliary holdings often consist of international markets, commodities, or even currency products.
Lastly, the managers look at the overall portfolio’s volatility and find ways to ensure the lowest amount of movement possible while still achieving a high rate of return. This can include holding stocks from sectors/nations that are in a different part of the economic cycle in the U.S. or similar techniques that hope to balance out the product’s profile.
"As a top down-portfolio manager, we are continuously analyzing sector and market conditions within today's global economy to select our various holdings, and to properly determine if our positioning is best utilized as being in or out of specific markets” said Roger Nusbaum, Portfolio Manager of RRGR in a press release. “By employing our broad and diversified investment approach within the transparency and efficiency of an actively managed ETF, we strive to benefit shareholders with a clearer and smoother ride throughout varying economic and market cycles."
With this relatively intensive methodology, the product does have a somewhat high management fee of 1.0%. Other expenses come in at 57 basis points while acquired fund fees tack on another 15 basis points as well. However, thanks to a fee waiver, the net expense ratio comes in at 1.4% at the time of the product’s launch (see Ten Best New ETFs of 2011).
Current top holdings include a mix of stocks and ETFs, while cash also makes up a double digit allocation, at least at time of writing. Taking the top spot is the iShares Dow Jones US Technology Sector Index Fund (IYW - ETF report) , the Vanguard Telecom Service ETF (VOX - ETF report) , and HJ Heinz Co . Given these holdings and some of the other top segments in the fund, it is pretty clear that a more defensive position is being taken, focusing on large caps and relatively high dividend payers.
While the fund’s solid methodology may be impressive, the relatively high fees could act as a barrier for RRGR as it tries to accumulate assets. Additionally, the active ETF world is becoming increasingly crowded as more issuers fight over a modestly growing pie in the segment (also read Five Great Global ETFs For Complete Equity Exposure).
Thanks to these issues, it could be difficult for RRGR to build up assets at least in the near term. However, the popularity of Nusbaum’s strategies in some investment cycles, as well as his blog, could give him a leg up on the competition especially if RRGR can outperform broad markets over the long haul.
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