AdvisorShares Plans SectorSAM ETF

by on April 18, 2011 | ETFs Mentioned:

AdvisorShares, one of the largest issuers of actively-managed ETFs, has put yet another fund of funds product into an already full pipeline. The proposed Rockledge SectorSAM ETF (SSAM) would seek “to generate stable and consistent annual returns under all market conditions” according to a recent SEC filing. The fund would utilize both long and short positions in other exchange-traded funds that “offer diversified exposure to U.S. large capitalization sectors,” seemingly referring to usage of the Sector SPDRs or competing products from other issuers.

The active ETF would be sub-advised by Brooklyn-based Rockledge Advisors, LLC and Alex Gurvich and Vlad Dimanshteyn would serve as portfolio managers. SSAM would rely on the Sector Scoring and Allocation Model (“SSAM”), a quantitative analytical system designed to forecast excess returns to each sector of the U.S. economy over a specific time period. The SectorSAM ETF would generally invest equal dollar amounts in long and short positions, resulting in an exposure profile that is market neutral. The filing did note, however, that the proposed fund would have the latitude to choose an additional long or short bias of up to 50% exposure or to hold part of the portfolio in cash [Handicapping The Active ETF Race].

Long/Short ETFs

There are already a handful of ETFs implementing long/short strategies, including one AdvisorShares product that got off to a rough start. The Mars Hill Global Relative Value ETF (GRV) initially attracted a great deal of interest from investors looking for exposure to alternatives. But after accumulating more than $40 million in assets shortly after launch, the fund struggled mightily from a performance perspective. Thanks to a number of bad bets on sectors and single economies, GRV lost close to 12% of its value in the first quarter of 2011–an abysmal stretch for a market neutral fund. That sparked a wave of outflows, and assets now stand at about $17 million [see Seven Best ETF Performers Of Q1 2011...And Five Of The Worst].

In addition to utilizing a different sub-manager, SSAM will be more targeted in nature than GRV. The proposed fund would focus exclusively on U.S. sectors, whereas the existing GRV maintains long and short positions in international sectors and broad-based international equity ETFs as well.

Other long/short ETPs include the ProShares RAFI Long/Short (RALS), a fund that utilizes a fundamental weighting methodology to establish long and short positions to individual stocks [see Rob Arnott Explains RAFI Weighting, Fundamental ETFs]. Credit Suisse also offers a long/short exchange-traded note; CSLS is linked to an index that maintains long and short positions in equities.

Several existing AdvisorShares ETFs are structures as ETFs of ETFs, and many have accumulated significant assets in relatively brief operating histories.

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Disclosure: No positions at time of writing.