Date Launched: Nov 16, 2009
Links: Website, Factsheet, Prospectus
Investment Strategy:
(ALT: 49.96 +0.14%) invests in a combination of foreign currency forwards and exchange-traded futures on commodities, currencies, interest rates, equity and bond indices in order to achieve the maximum absolute return for the portfolio. The fund reduces risks by taking long/short positions in “historically correlated” assets. There are no mandatory allocation requirements between the various asset classes. The portfolio targets an annual volatility of 6-8% and a Sharpe ratio of 0.50-0.75. The specific strategies utilized by ALT include:
1. “Yield and Futures Curve Arbitrage Strategies” – which profit from interest rate and futures contract price differentials.
2. “Technical Strategies” – which explore relationships between an assets’ historical return and its recent performance and then use quantitative models take up long/short positions. These are also called momentum or reversal strategies.
3. “Fundamental Relative Value Strategies” – which exploits discrepancies between an assets’ fundamental value and its market price.
Portfolio Managers:
Barclays Global Fund Advisors serves as the advisors for the trust. Ryan Braniff, supervised by Alan Mason, is primarily responsible for making the investment decisions for ALT.
Alan Mason, Principal – Mr. Mason is responsible for multi-asset class solutions at Barclays Global Investors (BGI) and has been with BGI since 1991.
Ryan Braniff, Principal – Mr. Braniff has led a team of portfolio managers at BGI that manage multi-asset class portfolios and has been with BGI since 2005.
The Numbers:
Expense Ratio –0.95%
Average Volume – n/a
Average bid-ask ratio: n/a
What’s special about it?
1. ALT is the only actively-managed ETF on the market that provides access to the commodities and futures market to retail investors, which has been a space largely dominated by institutional investors so far.
2. The trust doesn’t expect trading to occur more than once a week, although the advisors do have the authority to trade more frequently if necessary.
3. ALT is allowed to invest in futures listed on foreign as well as US exchanges while it may enter into foreign currency forwards primarily involving the 25 most actively-traded currencies.
Analysis:
Positives –
- ALT looks to maintain an absolute return profile, which means that it should not be affected as much by directional influences of the market. So even if the market is tanking, ALT should experience lower volatility because it takes long/short positions instead of making one sided bets.
- ALT controls its net credit exposure to counterparties by not allowing the maximum exposure to one single entity to exceed 10% of the portfolio’s NAV. This should guard it against a Lehman type scenario.
Negatives –
- ALT claims to reduce risk by taking long/short positions in “historically correlated” assets, but the one thing we’ve learnt from the past crisis is that in times of stress, all “normal” correlations break down, so don’t count on old correlations holding up to reduce risk effectively.
- At 0.95%, the hefty expense ratio is the 2nd highest in the US Active ETF space, after the Dent Tactical ETF. However, being the only player to venture outside of equities and fixed income means that any investors looking for exposure to other asset classes only have ALT as an option.
- In general, the strategies utilized by the investment team, are likely too complex for retail investors to grasp which might result in un-sophisticated investors staying away from ALT.
Performance since inception vs. iShares S&P GSCI Commodity-Indexed Trust:
Disclosure: No position in above-mentioned names.
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