Grail Advisors LLC, the investment advisor that launched the Grail American Beacon Large Cap Value Fund (GVT) last month, has filed with the SEC to launch four additional ETFs. Grail notes that these four funds will be the first actively-managed ETFs to use a single-manager approach. The proposed funds are:
- RP Growth ETF: Will use “a fundamental research driven approach to identify those industries and companies with the strongest growth prospects for revenue, earnings and/or cash flow over the medium and long term.”
- RP Focused Large Cap Growth ETF: Will invest in companies with a market cap in excess of $5 billion, generally holding equities of between 20 and 30 companies.
- RP Technology ETF: Will invest in companies engaged in communications, software, computer services, internet, television, and semiconductor industries.
- RP Financials ETF: Will use a fundamental research-driven approach to invest in financial companies with a market cap in excess of $2 billion.
Grail hopes that the four funds would begin trading September 1 on the NYSE Arca Exchange. According to the filing, all four ETFs would charge an expense ratio of 0.89%. This fee is significantly higher than passively-indexed ETFs (many of which maintain expense ratios as low as 0.10%), but a decent amount below the mutual fund industry average (approximately 1.4%).
“A Lot Sooner Than Imagined”
Unlike traditional ETFs, managers of these funds will have discretion on a daily basis to choose securities consistent with the ETF’s objective. With the launch of these funds, Grail will establish itself as the leader in the actively-managed ETF arena. “Our goal from the outset was to bring traditional, active fund managers to the ETF marketplace,” said William Thomas, chief executive of Grail Advisors. With these funds, that day has come “a lot sooner than even the most enthusiastic proponent of the ETF structure could have imagined.”
As an enthusiastic proponent of the ETF structure myself, I couldn’t agree more with Mr. Thomas. I recently wrote about the difficulties that Grail’s first fund has encountered since its May launch. Despite slightly outperforming its benchmark, GVT has experienced several zero-volume days and is yet to post daily volume above 5,000 shares. Despite these issues, Grail obviously believes that the market is ready for more actively managed funds. And despite my concerns about the volume its existing fund is generating, I don’t disagree with their strategy. The actively-managed ETF scene is showing signs of taking off, with WisdomTree announcing this week its plans to launch several actively-managed hedge fund ETFs. By establishing several funds targeting various investment strategies and sectors, Grail is solidifying its place as the dominant player in the space.
While I am a firm believer in the benefits of traditional ETFs, I also anticipate that the “hybrid” structure will become tremendously popular in coming months, as investors embrace the advantages of the ETF structure but continue to seek out excess returns. If it does, Grail has ensured its place (at least for now) as the leader of the pack.