Bethesda, Maryland-based ETF issuer AdvisorShares has launched another actively managed fund, the AdvisorShares Global Alpha & Beta ETF (RRGR), marking its 15th actively managed fund and the ninth equity product overall.
This is the first product to be managed by the Arizona-based advisory firm Your Source Financial. YSF is run by experienced money manager and popular financial blogger Roger Nusbaum, who has achieved decent fame through “Random Roger’s Big Picture” blog.
The fund intends to invest in a diversified mix of US and global assets with a significant allocation (more than 80 percent) in domestic and international equities, indicating a fairly bullish outlook and looks to outperform major benchmarks such as the Barclays Capital Aggregate Bond Index and the S&P 500 through the firm’s proprietary security selection process that uses a top-down approach of tactical assets allocation that narrows its focus down to sectors, industries or countries and ultimately to individual firms.
This ensures effective risk mitigation and lower volatility since the strategy aims to take advantage of a unique trend or circumstance using assets not correlated to the core holding.
The asset class breakdown at launch was as follows:
- US equities: 50%
- Foreign Equities: 24%
- Emerging Market Equities: 9%
- Cash: 12%
- Commodities: 4%
The process of equity selection involves different steps and starts with the analysis of the 200-day moving average of the S&P 500 and analysis of the yield curve. This approach helps decide if a shift to bond or stocks is required to avoid poor performance during down market periods. If the yield curve is inverted or the S&P 500 is below the 200 DMA, the portfolio manager moves to a defensive position to preserve capital.
Next, the fund manager evaluates different sectors and goes overweight on the sectors he expects to do well and underweight on the sectors expected to underperform. Then a fundamental analysis is done by the portfolio manager to select stocks, mutual funds and ETFs based on valuations, yield, earnings multiple and peer comparison to build up the core portfolio.
Additionally, the fund adds some satellite holdings to provide diversification benefits which also act as insurance in a down market. These holdings mostly consist of international equity, currency and commodity products in sectors/countries that are in a different economic cycle than in the US. RRGR could form part of the core portfolio for investors building long-term buy-and-hold portfolios or may be used to generate “alpha” relative to traditional stock and bond benchmarks.
With a net expense ratio of 1.4 percent, RRGR is towards the higher end of the range of ETFs that offer access to multiple asset classes.
It’s an interesting idea and I emphasized the core point, at least to my way of thinking, which refers to the intention of “moving to a defensive position” when the markets head south. In other words, the proposition is one of buy-and-hold even in down markets due to fund manager’s shifting into and out of various asset classes.
Only time will tell (along with the next bear market) whether this approach has merit or not. I will revisit this idea again after a few months of price data have accumulated to see how this ETF holds up in various market conditions.
Disclosure: No holdings