Exchange traded funds are becoming increasingly diverse tools for your portfolio…and the more you know about what's out there, the more valuable these tools become, writes Benjamin Shepherd of Global ETF Profits.
Exchange traded funds (ETF) were first envisioned as passive investment vehicles. But for better or worse, actively managed ETFs are the wave of the future, and ETF issuers are racing to bring their funds to the market.
AdvisorShares was quite busy in June with the launch of four actively managed funds. Three of the new funds will be sub-advised by Madrona Funds.
Madrona Forward Global Bond ETF (FWDB) is an ETF of ETFs, which is to say an ETF that invests in other ETFs. The fund maintains exposure to at least 12 classes of global bonds, and weights its holdings based on a historical yield curve analysis. The ETF employs a mean reversion strategy to underweight and overweight specific funds.
Madrona Forward Domestic ETF (FWDD) seeks to provide long-term capital appreciation by outperforming the S&P 500. The fund holds a portfolio of up to 500 large-cap US stocks, weighted by the consensus analyst estimates of the present value of future expected earnings relative to each stock’s share price. This means the stocks that offer the greatest value proposition receive a heavier weighting in the portfolio.
Madrona Forward International ETF (FWDI) seeks to outperform the MSCI EAFE Index by employing the same approach as its domestic cousin. Rather than holding domestic large-cap stocks, this fund’s portfolio will include up to 250 American depositary receipts from the largest issuers in the EAFE region.
Madrona doesn’t employ the typical capitalization-weighted indexing methodology for these funds, which is a good sign. But these funds’ strategies remain unproven, and I’d suggest waiting for these funds to mature before investing.
The funds are also expensive. Both equity funds carry an annual expense ratio of 1.12%, and the bond fund charges 0.95%.
The final newly launched fund from AdvisorShares is Meidell Tactical Advantage ETF (MATH), which is sub-advised by American Wealth Management. Meidell Tactical Advantage ETF is a broadly diversified fund with exposure to equities, fixed income, commodities, and currencies.
The fund employs a quantitative strategy that measures relative strength and moving averages to determine price-to-velocity measures. This analysis will inform the fund’s weighting across asset classes.
This rather complex ETF strategy results in an astronomically high 1.35% expense ratio. Nevertheless, the fund could make an interesting core holding for investors who want to add alternative-strategy funds to their portfolio.
In other news, Emerging Global Advisors launched a suite of eight emerging-market sector ETFs and rebranded three others. The total lineup now includes:
- EGShares Basic Materials GEMS ETF (LGEM)
- EGShares Consumer Goods GEMS ETF (GGEM)
- EGShares Telecom GEMS ETF (TGEM)
- EGShares Consumer Services GEMS ETF (VGEM)
- EGShares Utilities GEMS ETF (UGEM)
- EGShares Technology GEMS ETF (QGEM)
- EGShares Industrials GEMS ETF (IGEM)
- EGShares Health Care GEMS ETF (HGEM)
- EGShares Energy GEMS ETF (OGEM)
- EGShares Composite GEMS ETF (AGEM)
- EGShares Financials GEMS ETF (FGEM)
All of these funds’ portfolios hold 30 names that are among the largest companies based in emerging markets. These funds will allow investors to benefit from growing domestic demand in developing markets. They should also be useful for investors that employ sector rotational strategies.
The EGShares funds charge a 0.85% annual expense ratio. I would wait for some volume to accumulate before adding them to your portfolio, but these funds have promise.
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