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 (
RRGR
)
. The new fund marks the 15
th
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
).
RRGR's strategy
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
)
,
the Vanguard Telecom Service ETF (
VOX
)
, and
HJ Heinz Co (
HNZ
)
. 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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HEINZ (HJ) CO (HNZ): Free Stock Analysis Report
ISHARS-DJ TECH (IYW): ETF Research Reports
(RRGR): ETF Research Reports
VIPERS-TELE SVC (VOX): ETF Research Reports
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