Links: Website, Factsheet, Prospectus

Investment Strategy:

AADR is an actively-managed ETF that looks to achieve long-term capital appreciation above international equity benchmarks. The fund will invest in non-US companies that trade on US exchanges through American Depositary Receipts (ADRs). The fund is sub-advised by WCM Investment Management which analyzes major trends in the global economy in order to identify those economic sectors and industries most likely to benefit. The managers look at a time horizon of 3-5 years and believe in portfolio concentration. The portfolio will typically consist of fewer than 30 companies, but will have a minimum of 20 holdings, none of which will exceed more than 25% of the portfolio in weight. AADR’s primary benchmark is the BNY Mellon Classic ADR Index and its secondary benchmark is the MSCI EAFE Index.

Portfolio Managers:

WCM Investment Management is California-based sub-advisor that was established in 1976 and managed $1.4 billion in assets as of Mar 31, 2010. The individuals handling the day-to-day management of the portfolio are as follows:

Paul R. Black, Portfolio Manager – Paul is the President & co-CEO of WCM and has been in the investment business for 26 years. He helps define the firm’s investment strategy and has an active role in the selection of securities.

Kurt R. Winrich, Portfolio Manager – Kurt is the Chairman & co-CEO of WCM and has over 25 years of experience in the investment business. His primary responsibilities include portfolio management and equity research.

Peter J. Hunkel, Portfolio Manager, Business Analyst – Peter joined WCM in 2007 and has been in the investment business for 11 years, with previous experience at Centurion Alliance and Templeton Private Client Group.

Michael B. Trigg, Portfolio Manager, Business Analyst – Michael has 9 years of experience in the investment business and previously worked at Morningstar.

The Numbers:

Expense Ratio – 1.25%, including 0.75% in management fees. Expenses capped below 1.25% till May 6, 2011.

What’s special about it?

1. AADR is the only Active ETF that focuses on providing exposure through ADRs. By virtue of its mandate, AADR will end up having exposure to international mega-caps that are listed in the US like Nestle and Baidu.com, two companies which can be found in the fund’s top 10 holdings.

2. Partnering with BNY Mellon does give the fund a big advantage because BNY Mellon is the world’s largest depository for ADRs and is a leading source for international ADR market intelligence.

3. The fund’s sector and region diversification differs significantly from that composition of its benchmark indices – the BNY Mellon Classic ADR Index and the MSCI EAFE Index, but that’s where the managers hope to add value to the fund.

Analysis:

Positives –

- The managers, WCM Investment Management, have quite a strong track record in managing international portfolios. The prospectus highlights the performance of a “Focused Growth International Composite” that has similar objectives and investment strategies to the fund. The composite outperformed the MSCI EAFE by close to 9%, since inception in Dec, 2004.

Negatives –

- AADR’s expense ratio of 1.25% comes in at the high end of the Active ETF market, and it is only capped at 1.25% till May, 2011. The gross expenses for the fund are actually 1.29%.

- The portfolio concentration could lead to more volatile returns, implying greater upside during good times but also greater downside during bad times.

 
Disclosure: No positions in above-mentioned names.

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Disclaimer: Views and opinions expressed on EtfsHub are those of the author alone and do not in any way represent the official views, positions or opinions of the employers – both past or present – of the author in question, or any other institutions and corporations associated with the author. Neither the information nor any opinions contained or expressed above and elsewhere on EtfsHub constitutes or should be construed as a solicitation or offer by EtfsHub to buy or sell any securities or other financial instruments or to provide any investment advice or recommendations. EtfsHub shall not be liable for any claims or losses of any nature, arising indirectly or directly from use of the information on or accessed through the site. Please see full disclaimers here.

Links: Website, Factsheet, Prospectus

Investment Strategy:

GRV is an actively-managed ETF that has an investment objective to exceed the total returns of the MSCI World Index with little or no correlation with the index. The fund does this by establishing long/short positions in other ETFs that provide exposure to certain groups of equities. The fund takes long positions in what they believe are the most attractive opportunities and then establishes an equivalent dollar amount of short positions in unattractive regions. By having a net market exposure of zero in the core of the portfolio, the fund’s sub-advisors – Mars Hill Partners – minimize market exposure and directional influences. However, the portfolio managers can use derivatives to add directional exposure of up to 50% net long or short on top of the core market neutral portfolio. This does mean that the fund may be leveraged in instances where it has a net long or short exposure, which is obtained through futures or swaps.

Mars Hill utilizes numerous multi-factor regression models to identify the highest and lowest probability opportunities and risks, with the primary driver being a dynamic ranking of four major regions – US, Europe, Asia and Emerging Markets.

Portfolio Managers:

Mars Hill Partners LLC is a Colorado-based investment advisor that is an affiliate of Huntley Thatcher Ellsworth Ltd (HTE) and was created in 2009 by principals from HTE. The day-to-day management of GRV will be done by the following portfolio managers:

James D. Huntley – James is the founding member of Mars Hill as well as HTE which he founded in 1997. Prior to that James worked spent 5 years advising affluent families and institutional clients for boutique firms.

David A. Houle – David is the Director of Research at Mars Hill and HTE and oversees strategy development, trading and risk management. He joined HTE in 2002.

Elliott J. Orsillo – Elliot joined Mars Hill in 2010 and HTE in 2009 after working with Russell Investments for 6 years as a portfolio manager.

Gregory L. Thatcher – Gregory joined Mars Hill in 2010 and HTE in 2000 after working for 15 years in the brokerage industry.

The Numbers:

Expense Ratio – 1.49%, including 1.35% in management fees. Expenses capped below 1.50% till Mar 14, 2011.

What’s special about it?

1. GRV is the first actively-managed ETF on the market that provides long/short exposure, giving the managers an opportunity to extract alpha not just from their long bets but also their short bets.

2. GRV has been able to attract investors very quickly. In the 1 month since the fund was launched, GRV has already gathered close to $39 million in assets, quickly making it the largest equity-focused active ETF in the US.

Analysis:

Positives –

- Having a core market neutral strategy allows the managers to avoid having a strong market exposure that long funds are exposed to. At the same time, the optional directional overlay gives the manager the ability to take advantage of a strongly trending market.

Negatives –

- GRV’s 1.49% expense ratio makes it the second most expensive Active ETF in the US, coming in after the Dent Tactical ETF (DENT), also run by AdvisorShares. The high expense ratio will be justifiable only if the managers are able to outperform their benchmark by a large enough margin.

- The advisor was only established in 2009, so there’s not much of a track record from funds that Mars Hill may have run previously, which investors can look to for reference.

Disclosure: No positions in above-mentioned names.

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Disclaimer: Views and opinions expressed on EtfsHub are those of the author alone and do not in any way represent the official views, positions or opinions of the employers – both past or present – of the author in question, or any other institutions and corporations associated with the author. Neither the information nor any opinions contained or expressed above and elsewhere on EtfsHub constitutes or should be construed as a solicitation or offer by EtfsHub to buy or sell any securities or other financial instruments or to provide any investment advice or recommendations. EtfsHub shall not be liable for any claims or losses of any nature, arising indirectly or directly from use of the information on or accessed through the site. Please see full disclaimers here.

Clearly, the Dent Tactical ETF has not been able to recover from its underperformance of the past year. In fact, the performance seems to have deteriorated further. As of May 6, 2010, DENT was down 4.49% since inception, while the S&P 500 was up more than 5.55%, representing an underperformance in excess of 10%. So what’s behind this poor showing?

As detailed in the In Focus article on DENT, the fund is managed by portfolio managers Harry S. Dent and Rodney Johnson. Harry Dent, a well-respected name in finance, is famous for creating “The Dent Method”, a forecasting approach that is based on demographic trends. The fund’s strategy tries to identify “through proprietary economic and demographic analysis, the overall trend of the U.S. and global economies and how consumer spending patterns may change”. The managers then utilize ETFs to translate their views into portfolio allocations. Taking a cursory look at DENT’s existing holdings on its website, the fund’s biggest allocation is to XLY – the SPDR Consumer Discretionary Sector ETF. However, the entire portfolio is essentially equally spread out between 10 different ETFs, with the smallest weight being 9.01% and the largest being 10.39% of the fund, as of May 5, 2010. All of the fund’s current top 5 holdings have handily outperformed the S&P500 in the last 6 months. Of course, DENT may not have necessarily been holding these ETFs in their current weightings in the past. So why was there underperformance despite allocation to seemingly strong segments of the market?

Digging into the monthly manager commentaries put out by Harry Dent provides some clues. The DENT portfolio was sitting 30% in cash in February and at the end of March, the managers were again “waiting on the sidelines with our cash position to see who wins, buyers or sellers”. The heavy allocation to cash has been justified by the managers to be largely a result of what their proprietary model tells them and also due to their momentum strategies which creates “transition periods” during which the fund sells one ETF and sits on cash while waiting for a buy signal from another ETF. While hard to say how persistent these cash allocations were, they could well be a contributing factor to this lagging performance. With the equity markets roaring up in 2010, with the exception of the last few weeks, sitting on un-invested cash would definitely detract from returns. In this interview with Noah Hamman on IndexUniverse, Cinthia Murphy also probes Noah on DENT’s high turnover levels. That could be another important factor hampering returns.

Whatever the case, DENT will have to make some major leaps in its performance if it is to justify its relatively exorbitant expense ratio to investors going forward or else the trickle of assets flowing into DENT over the last few months might stop all together.

Disclosure: No positions in above-mentioned names.

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Disclaimer: Views and opinions expressed on EtfsHub are those of the author alone and do not in any way represent the official views, positions or opinions of the employers – both past or present – of the author in question, or any other institutions and corporations associated with the author. Neither the information nor any opinions contained or expressed above and elsewhere on EtfsHub constitutes or should be construed as a solicitation or offer by EtfsHub to buy or sell any securities or other financial instruments or to provide any investment advice or recommendations. None of the material above and elsewhere on EtfsHub is intended to endorse or promote any company or its products. EtfsHub shall not be liable for any claims or losses of any nature, arising indirectly or directly from use of the information on or accessed through the site. Please see full disclaimers here.

Links: Website, Factsheet, Prospectus

Investment Strategy:

The Dent Tactical ETF (DENT: 19.5501 0.00%) is an actively managed fund of funds (more accurately, an ETF of ETFs) and invests primarily in other ETFs on the market. With a goal of long-term capital growth, DENT tries to identify “through proprietary economic and demographic analysis, the overall trend of the U.S. and global economies and how consumer spending patterns may change”. The portfolio managers use that analysis to invest in ETFs across different asset classes, including domestic and foreign equities, fixed income and commodities.

Portfolio Managers:

Harry S. Dent – Developer of “The Dent Method”, a forecasting approach based on demographic trends. Has several best sellers to his name and also publishes the HS Dent Forecast newsletter. Has been featured in television and written media numerous times.

Rodney Johnson – President of HS Dent Investment Management. Has worked with Harry Dent for more than 10 years, developing the Dent Method. Has been in the financial industry for over 20 years.

Past Performance –

1. The prospectus highlights the performance of a “Dent Strategic Portoflio” in the Northern Lights Variable Trust, which operates on very similar strategies as DENT and reported annualized returns of 12.35% in 2009, ending May 31, 09, outperforming the S&P500 by 10.58%.

2. The “AIM Dent Demographics Trend Fund” started off with a similar strategy in 1999 but in a 4-year period till 2004, it lost 11%, underperforming the S&P by about 9% per year.

The Numbers:

Gross Expense Ratio – 1.56%

Management Expense Ratio – 0.95%

Average Volume – 18,579 shares

What’s special about it?

1. Unlike any other existing Active ETF, DENT invests solely in other ETFs as opposed to individual securities. In other words, DENT resembles a fund of mutual funds, except it’s made up of ETFs which are supposedly cheaper and more liquid than mutual funds, hence benefitting investors. (or at least that’s the idea)

2. The fund can be long, short or in cash at any point, at the manager’s discretion and depending on the market conditions.

3. Investment strategy is based on 5 key attributes: Demographics, Tactical, Risk Mitigated, Expertise and Active.

Analysis:

Positives –

- Investing only in other broadly based ETFs instead of individual securities ensures there is sufficient diversification in the portfolio, since there would be no large single stock or sector bets. The fund has to be in 10 sectors.

- DENT has been the fastest growing Active ETF getting a lot of investor interest, trading over a million shares in its first 4 days, and is already the 2^nd largest Active ETF on the market with a market cap of around $26 million. The liquidity will help ensure spreads are not too wide.

Negatives –

- As a fund of ETFs, DENT might well be just layering on expenses on top of the expenses of underlying ETFs they invest in. A 1.56% expense can eat a big part of your return, especially in sideways markets.

- Whether or not a long-term, demographics based strategy is even relevant to current market conditions is debatable as investor sentiment and markets continue to be directed by short-term developments and government intervention.

Performance since inception vs S&P500:

Disclosure: No position in DENT.
 
Disclaimer: Views and opinions expressed on EtfsHub are those of the author alone and do not in any way represent the official views, positions or opinions of the employers – both past or present – of the author in question, or any other institutions and corporations associated with the author. Neither the information nor any opinions contained or expressed above and elsewhere on EtfsHub constitutes or should be construed as a solicitation or offer by EtfsHub to buy or sell any securities or other financial instruments or to provide any investment advice or recommendations. EtfsHub shall not be liable for any claims or losses of any nature, arising indirectly or directly from use of the information on or accessed through the site. Please see full disclaimers here.