AdvisorShares, the Bethesda, Maryland-based firm behind many of the most successful active ETFs on the market, announced this week a partnership with TrimTabs Asset Management to develop an actively-managed ETF. TrimTabs is an independent institutional research firm built around the premise that stock prices are a function of liquidity rather than value. The company was founded to provide short ideas to institutional clients, but changed its focus to equity market liquidity in 1995. TrimTabs now gathers and provides data summarizing money flows and equity market liquidity.
“Most quantitative ETFs focus on easily available price, volume, and earnings data,” said TrimTabs founder Charles Biderman in a press release announcing the partnership. “Since data on the supply and demand for stocks is scattered across so many sources, most strategies ignore stock market liquidity. However we believe that stock prices are a function of liquidity rather than value. Like the prices of any tradable good, the prices of stocks are driven by supply and demand.”
AdvisorShares has takes a unique approach to building its active ETF business, forming partnerships with a variety of research and asset management firms. The firm’s first ETF (DENT) was the result of a partnership with Harry Dent, the analyst famous for popularizing the ‘baby boomer spending wave theory’ which suggested that the stock market would peak in 2007-2009. The company also teamed up with Mars Hill on a long/short ETF (GRV), and last year joined forces with Cambria Investment Management to launch the Cambria Global Tactical ETF (GTAA). The portfolio managers of that product are Mebane Faber and Eric Richardson, co-authors of the influential book The Ivy Portfolio which seeks to show investors how they can invest like the country’s biggest university endowments [see Counting Down The Best New ETFs of 2010].
The most recent addition to the AdvisorShares lineup was an active high yield debt fund managed by Peritus (HYLD). The product has garnered significant interest from the investment community for tracking the junk bond market, an area of the financial world that seems tailor-made for active management. So far in 2011, HYLD has managed to outperform its rivals in the High Yield Bond ETFdb Category by a significant margin; it has gained close to 1.6% since the beginning of the year compared to a 1.1% gain for HYG and a 0.9% gain for PHB, an impressive alpha considering that the year is only two weeks old. Should these figures hold up over the full year, it could bode well for the active management industry and help to establish these funds as a viable alternative to their plain vanilla index tracking brethren who have managed to attract the lion’s share of ETF assets so far [see Seven Wildly Successful Active ETFs].
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Disclosure: No positions at time of writing.