ETF Pipeline: Another Active ETF

by on July 14, 2010 | ETFs Mentioned:

The past few months have seen a number of interesting developments in the active ETF space. A number of major players in the mutual fund game have laid the groundwork for a foray into the ETF world, a development that could lead to a flood of interest (and cash) in active funds. Grail announced last month that it was partnering with DoubleLine, setting the stage for the active ETF space to get its first superstar manager. And the SEC’s review of the use of derivatives in mutual funds and ETFs has caused many issuers to shuffle regulatory filings, altering the universe of allowable securities in proposed ETFs.

On top of all that, the pipeline has continued to fill with new ETF ideas. One of the latest to hit the wire is the Active Bear ETF (HDGE) from AdvisorShares. In an SEC filing, the company behind DENT and the recently-launched GRV offered up some details on the proposed product, which seems to be unlike anything the ETF industry has seen to date. HDGE’s investment objective consists of “selecting a portfolio, on a short basis only, of liquid U.S. exchange-traded equities, exchange-traded funds (ETFs) and exchange-traded products.” Utilizing a bottom-up approach, the active ETF would seek to identify securities with “low earnings quality or aggressive accounting that may be intended, on the part of company management, to mask operational deterioration and bolster the reported earnings per share over a short time period.”

In addition to short positions in equities and ETFs that meet the aforementioned criteria, the fund will invest in short-term government securities and cash equivalents.

HDGE joins a number of other AdvisorShares ETFs in the product development pipeline, including the WCM/BNY Mellon Focused Growth ETF (AADR). The company’s first ETF product, the Dent Tactical ETF (DENT), is the largest actively-managed equity ETF on the market with about $22 million in assets [use the ETF screener to see all actively-managed ETFs in each asset class]. That fund utilizes proprietary economic and demographic analysis to identify the overall trend of the U.S. and global economies and analyze how consumer spending patterns may change. The recently launched GRV uses a “relative value” approach, seeking to combine long positions in the most attractive country, sector, and industry ETFs with equal dollar amounts short in the least attractive country, sector and industry ETFs [read more about GRV's strategy].

No expense ratio for HDGE was included in the SEC filing. DENT and GRV charge expense ratios of 1.56% and 1.49%, among the highest in the ETF industry [see a list of the most expensive ETFs].

Disclosure: No positions at time of writing.