Date Launched: May 4, 2009
Links: Website, Factsheet, Prospectus, White Paper
Investment Strategy:
(GVT: 31.39 0.00%) is an actively-managed ETF with a goal of long-term capital appreciation as well as current income. The funds are managed by 3 sub-advisors mentioned below, and they utilize a stock selection methodology that involves choosing stocks with favourable earnings growth potential, price-to-earnings ratio, price-to-book ratio and dividend yields. In times of market stress, the fund is allowed to be in 100% cash, but under normal circumstances, the fund is at least 80% invested in US-listed large cap stocks (those with capitalizations similar to that of stocks in the Russell 1000 Index).
Portfolio Managers:
GVT is sub-advised by American Beacon Advisors Inc. which will allocate assets to 3 investment managers – Brandywine Global Investment Management, Hotchkis and Wiley Capital Management and Metropolitan West Capital Management. The sub-advisors’ strategies are largely similar and follow a value investing methodology but for a detailed outline of the differences in each sub-advisor’s strategy, check out the fund factsheet.
Brandywine Global Investment Management (33%) – Paul R. Lesutis serves as the lead portfolio manager of the strategy while Earl J. Gaskins serves as co-manager. Brandywine manages $32.8 billion in assets and is a subsidiary of Legg Mason Inc.
Hotchkis and Wiley Capital Management (34%) – Scott McBride, Judd Peters and George Davis lead the day-to-day management of Hotchkis’ portion of the ETF. Hotchkis manages $10.8 billion in assets.
Metropolitan West Capital Management (33%) – Howard Gleicher oversees the team responsible for managing the large cap value ETF. Metropolitan West manages $8.0 billion in assets and is majority owned by Wells Fargo & Co.
Past Performance –
1. The prospectus highlights the performance of “Large Cap Value Representative Account”, which has similar objectives, policies, strategies and risks to those of GVT and that account has been managed at American Beacon Advisors for over 10 years. For the year ended Dec 31, 2008, that account’s 1-year returns were more than 10% ahead of the Russell 1000 but the 5-year returns were very close to that off the Russell 1000.
2. Offering a more direct comparison is the actual “American Beacon Large Cap Value Fund”, a mutual fund that is sub-advised by 4 advisors, 3 of whom are the same as the sub-advisors of GVT. The mandate of this mutual fund is largely the same as that of GVT as well. This fund has marginally underperformed the Russell 1000 Index when compared since inception.
The Numbers:
Expense Ratio – Capped at 0.79% until at least April 30, 2010 (by contractual agreements with the manager), and 0.85% after that
Average Bid-Ask Ratio – 0.28%
Average Volume – 10,468 shares
What’s special about it?
1. Was the first ETF that allowed portfolio managers unrestricted trading, unlike the PowerShares Active ETFs that were launched before it in 2008.
2. GVT is a multi-manager ETF, following the example of multi-manager mutual funds that have multiple sub-advisors managing the day-to-day investment process.
3. The investment mandate allows the fund to be in cash and the fund need not be fully invested in equities even in times of market stress.
Analysis:
Positives –
- The multi-manager approach ensures diversification in investment styles. If you like the Ben Graham and Warren Buffet approach to stock selection (ie. value investing), then this might be a good pick, because all 3 managers utilize some variant of the strategies recommended by value investors.
Negatives –
- Having been in the market for about 9 months now, the market cap of GVT is still only a measly $3.2 million. This cannot bode well for the future, and unless more interest is generated in this active ETF, it might be unprofitable for Grail to continue keeping GVT on the market.
- The bid-ask ratio of 0.28% means that investors may lose about 0.6% in value each time they go in and out of GVT, hence active trading of GVT is probably a bad idea for investors.
Performance to Date vs Russell 1000 Value Index:
Disclosure: No positions in above-mentioned names
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