AdvisorShares, the firm behind one of the largest lineups of actively-managed ETFs, brought its latest idea to market on Wednesday. The most recent addition is the TrimTabs Float Shrink ETF (TTFS), the result of a partnership with a firm known for innovative research on the connections between stock liquidity and long-term performance.
The TrimTabs methodology is based on the idea that stocks perform best when the total number of outstanding shares has decreased over the past four months or so. The rationale for this criteria is pretty straightforward; with the same amount of money chasing a declining number of shares, there should be upward pressure on share prices. If corporate insiders have more complete information than the general public, their timing of repurchases should be indicative of a bullish outlook on the prospects of their business.
The portfolio manager for the active ETF takes other factors into consideration as well: target companies are generally preferred to be financing share repurchases through free cash flow as opposed to debt issuance, and are likely to maintain solid balance sheets (as indicated by leverage ratio). Generally, TTFS is built around the premise that stock prices are a function of liquidity rather than value [see the Complete List of Active ETFs].
Charles Biderman, the founder of TrimTabs, and Minyi Chen will serve as the portfolio managers for TTFS.
Under The Hood
The goal of TTFS is to outperform the Russell 3000 Index, a broad-based index of U.S. stocks. The underlying portfolio, however, will be considerably more shallow than that benchmark; TTFS will hold only about 100 individual stocks. The fund invests equally in selected companies, resulting in a portfolio that may tilt exposure towards small and mid cap companies relative to cap-weighted indexes.
TTFS is the 11th product launched from AdvisorShares, who now has close to $400 million in aggregate assets under management. The company’s Active Bear ETF (HDGE) has performed particularly well amidst the recent market turmoil; that fund is up close to 25% over the last 13 weeks and has seen assets top the $100 million mark [see more on HDGE's Fact Sheet].
TTFS will charge 0.99%. ETFs linked to the Russell 3000 (there are two to choose from) can charge as little as 15 basis points.
While TTFS is the first ETF of its kind, there are a couple existing products built around generally similar investment theses:
- Guggenheim Insider Sentiment ETF (NFO): This ETF is linked to an index that consists of 100 stocks deemed to reflect favorable corporate insider buying trends and earnings estimates increases by Wall Street analysts. Current components of NFO include Time Warner Cable and ValueClick.
- PowerShares Buyback Achievers Portfolio (PKW): This ETF is linked to the Share BuyBack Achievers Index, a benchmark that consists of U.S.-listed companies that have repurchased at least 5% of outstanding shares during the past 12 months. Current components include IBM, Wal-Mart, and HP.
Disclosure: No positions at time of writing.
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