As the ETF world has continued to expand throughout 2010, one slice of the market that has seen a great deal of growth has been the active management space. Although ETFs started off tracking well-known indexes such as the S&P 500 or the Russell 2000, many have begun to move towards more active management in recent months, seeking to beat benchmarks rather than follow them. One firm that is leading the charge in this space is AdvisorShares the Maryland-based company probably best known for its work with Cambria in the Global Tactical ETF (GTAA).
While active management has been slow to catch on in the ETF world– actively managed funds traditionally have higher fees than more passive funds– it is certainly not from a lack of effort by AdvisorShares who recently announced three proposed funds that could enter the space in the near future. In a recent SEC filing, the company announced that they will be partnering up with Madrona Funds in order to offer investors actively-managed access to several different corners of the market. These new funds forsake traditional cap-weighting systems and instead use forward looking analysis in order to determine the weightings, potentially offering investors the chance to achieve outsized returns.
The proposed funds include:
- MADRONA FORWARD DOMESTIC ETF (FWDD): This fund will have long-term capital appreciation as its primary goal, and it plans to achieve this by trumping the S&P 500 Index by selecting a portfolio of up to 500 of the largest U.S. traded equity securities. It’s proposed that the fund’s weighted allocation system will be based on analyst estimates about the present value of expected future earnings.
- MADRONA FORWARD INTERNATIONAL ETF (FWDI): Investors desiring active-management products in the emerging market space will find the Madrona Forward International ETF proposal interesting. The fund will seek to provide long-term capital appreciation by attempting to outperform international benchmarks, including the MSCI EAFE Index as its primary goal, and the MSCI Emerging Market Index as its secondary mark to beat.
- MADRONA FORWARD GLOBAL BOND ETF (FWDB): The filing states that the fund plans to invests in indexed ETFs that provide exposure to at least 12 distinct bond classes, including but not limited to short-term treasury bonds, municipal bonds, and high yield U.S. corporate bonds. Management will meet on a bi-weekly basis and employ a weighted allocation system by selecting bonds from each of the categories based on yield-curve analysis. Investors interested in an actively-manged ETF focused on the high-yield space may want to consider AdvisorShares Peritus High Yield ETF (HYLD) for their portfolios as well [see AdvisorShares, Peritus Team Up On Active High Yield ETF].
The new ETFs proposed by AdvisorShares are another step forward in providing exposure to alternative-investments styles at a cheap price, an opportunity historically available to far fewer investors. AdvisorShares is known for their expertise and experience in the active-ETF space, currently offering multiple products, and more importantly employing unique methodologies and straying away from traditional market-cap weighted portfolios and passive index tracking [also see Seven Wildly Successful Active ETFs]. The company emphasized the value of their active-management role in the SEC filing by pointing out their alternative-methodologies and noting that these funds will be based on forward-looking fundamental analysis. No fees were disclosed in the filing.
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Disclosure: No positions at time of writing.