AdvisorShares Teams Up With Cambria On Active Global ETF (GTAA)

by on October 26, 2010 | ETFs Mentioned:

AdvisorShares continues to expand its footprint in the active ETF arena, announcing today the launch of the Cambria Global Tactical ETF (GTAA). The new fund comes out of a partnership with Cambria Investment Management, the firm run by Mebane Faber and Eric Richardson. Faber is perhaps best known for his 2007 paper A Quantitative Approach To Tactical Asset Allocation, in which he presented a quantitative market timing model designed to manage risk in various markets and deliver equity-like returns with bond-like volatility and drawdown. Along with Richardson, Faber co-authored The Ivy Portfolio, an influential book that offers average investors a strategy to mimic the world-beating returns posted by endowments at Harvard and Yale.

Cambria has been managing separate accounts since 2007, and the firm’s global allocation models became particularly popular during the recent recession when the risk management strategies they implement allowed many investors to sit out much of the bear market. Cambria will now take its investing strategy into the ETF arena through GTAA and a partnership with AdvisorShares, which could offer greater flexibility and more widespread access to the underlying investment strategies [also see AdvisorShares Planning Two Funds-Of-Funds].

The ETF structure will allow Cambria to utilize increased granularity in its trend-following models–for example further breaking down international developed markets into country-specific exposure. That feature has the potential to further enhance the risk-adjusted return within the framework of the quant-based asset allocation strategy. According to the fund fact sheet, GTAA will generally invest in between 50 and 100 different ETFs, although the risk management overlay utilized by the portfolio provides the flexibility for GTAA to be 100% invested or 0% invested–or anywhere in between. GTAA will also utilize a higher frequency rebalancing than the published portfolios, reviewing holdings weekly instead of monthly.

GTAA will be the first truly global asset allocation ETF; the fund will invest in ETFs across a variety of asset classes, including domestic and foreign equities, fixed income, and real estate, as well as commodities and currencies. There are already dozens of target retirement date or diversified portfolio ETFs available, but none already on the market offer the breadth of exposure GTAA will, often overlooking commodities, international fixed income, and currencies [see Active ETF Pipeline: Previewing Some Exciting Funds On The Horizon].

While the new fund is actively-managed and not linked to any specific benchmark, it will utilize a quantitative approach that is rules-based and systematic. GTAA will follow a trend-based model across these asset classes, and will either be invested or be defensive through a cash position for each depending on certain metrics. At launch, GTAA’s largest positions were in the Vanguard Emerging Markets ETF (VWO), iShares MSCI EAFE Small Cap Index Fund (SCZ), SPDR Dow Jones International Real Estate ETF (RWX), Barclays 20+ Year Treasury Bond Fund (TLT), Dow Jones U.S. Real Estate Index Fund (IYR), and SPDR Dow Jones REIT ETF (RWR). Each of those six funds made up about 5% of assets. “We are very excited to be able to offer this risk-managing strategy to investors in an actively managed ETF,” said Noah Hamman, CEO and Founder of AdvisorShares, in a press release [see What Investors Need To Know About An ETF-of-ETFs].

The expense structure of GTAA will be somewhat unique. The management fee will be pegged at 0.90% for the first $250 million in assets, declining to 0.80% for the next $750 million, 0.70% for the next $4 billion, and 0.60% for any assets in excess of $5 billion. Because GTAA is structured as an ETF-of-ETFs, the expense ratios of the underlying holdings must also be considered in the total cost equation. Net expenses for GTAA have been capped at 1.35% until September 2011 [see Total Cost Of ETF Investing].

GTAA is the fourth actively-managed ETF from AdvisorShares, and the third that invests in other ETFs. So far the company’s most popular offering has been the Mars Hill Global Relative Value ETF (GRV), a long-short product that seeks to go long in sectors and regions expected to outperform and short in those expected to underperform [see AdvisorShares Launches Mars Hill Global Relative Value ETF].

[Read more about GTAA on the fund fact sheet. For updates on all new ETFs, sign up for our free ETF newsletter.]

Disclosure: No positions at time of writing.