New AdvisorShares Global Alpha & Beta ETF Debuts
AdvisorShares -- the leader in actively managed ETFs -- teamed up with Roger Nusbaum of the "Random Roger" stock market blog in rolling out a new ETF Tuesday:AdvisorShares Global Alpha & Beta ETF ( RRGR ).
Nusbaum, the ETF's sub-advisor, is chief investment officer of Phoenix-based Your Source Financial, with $148 million in assets. He is a regular contributor on TheStreet.com.
The new ETF uses a go-anywhere tack. The prospectus states he will use a top- down view in investing in bonds, money market instruments, mutual funds, ETFs, stocks of any size and foreign companies listed in the U.S.
The investment strategy involves overweighting sectors that Nusbaum expects will perform well. He will also underweight those he thinks will lag. And he will diversify across industries and countries.
He will sell stocks or ETFs that are fully valued, become risky, get overweighted in the portfolio or simply because he finds something that he likes better.
If the S&P falls below its 200-day moving average or if the yield curve is inverted, the fund will take a defensive position. An inverted yield curve means that long-term debts are yielding less than short-term debts of the same credit quality. Demand for long-term bonds is higher than short-term, sending yields lower and prices higher. When that happens, it suggests the economy will go into a recession.
The fund seeks to outperform a benchmark that has 60% of its assets in the S&P 500 and 40% in Barclays Capital Aggregate Bond Index but with less volatility and risk, an AdvisorShares release said.
"That is clearly, absolutely, undeniably the wrong benchmark," to compare the strategy's performance against, said Rick Ferri, founder of Portfolio Solutions. "Of course the back testing is going to show outperformance because international markets and especially emerging markets have outperformed the U.S. over the past 10 years."
Performance should be measured against a global equity index and a global bond index, he added.
As of Tuesday, RRGR had 50% of assets invested in U.S. stocks, 24% in foreign stocks, 12% in cash, 9% in emerging markets and 4% in commodities. Top holdings areiShares Dow Jones U.S. Technology ( IYW ), weighted 15%; cash 12%;Vanguard Telecom Services ETF ( VOX ) 4%,H.J. Heinz ( HNZ )3.04% andKinder Morgan Energy Partners ( KMP ) 3%.
The prospectus claims Nusbaum has applied the same investing strategy in running separately managed accounts since July 2004. It states those accounts gained 9.43% in 2005, 13.77% in 2006 and 10.9% in 2007. Then it lost 27.7% in 2008, returned 26.58% in 2009, gained 13.48% in 2010 and lost 2.96% in 2011. Returns averaged 6.21% annually over those years.
The S&P 500 returned 4.91% in 2005, 15.79% in 2006, 5.49% in 2007 and lost 37% in 2008. It rose 26.46% in 2009, 15.06% in 2010 and 2.11% in 2011, according to Morningstar Inc. It gained 4.69% annually on average those years.
Nusbaum beat the benchmark by an average of 1.52 percentage points annually between 2005 and 2011. Returns in excess of the benchmark would be mostly washed away by the ETF's 1.4% net annual management fee. The gross fee is 1.72% with a 0.32% waiver that can be cancelled at any time.