New AdvisorShares ETF Minds the Fundamentals
July 22nd at 11:00am by Tom Lydon
Actively Managed ETFs News:
The exchange traded fund (ETF) universe just got a little bigger with the addition of a new actively managed ETF, which also happens to be the first of its kind.
AdvisorShares Investments, LLC will soon launch a truly unique ETF: the WCM/BNY Mellon Focused Growth ADR ETF (NYSEArca: AADR), which is the first actively managed ETF to invest in international equities, using American Depositary Receipts (ADRs).
The new fund will allow investors to capture the potential of high-performing international stocks using an actively managed strategy. AADR is a concentrated, low turnover portfolio of high quality, growth oriented businesses in the ex-US universe, including both developed and emerging markets. [4 Reasons Actively Managed ETFs Have Legs.]
BNY Mellon is the provider of the BNY Mellon Classic ADR Index. WCM Investment Management, a boutique money management firm in Laguna Beach, Calif., is sub-advisor to the ETF and will direct investments in 20-30 top industry-leading non-U.S. companies.
WCM came to be the sub-advisor for the fund after having discussions with AdvisorShares who later introduced BNY Mellon as a partner. The BNY connection was appealing because of their expertise in ADRs. Both BNY Mellon and AdvisorShares had been on the hunt for a manager of the fund and “coincidentally, they had both come up with WCM as a sub advisor in their own independent searches,” according to Mike Trigg who is an analyst at WCM, and one of the portfolio managers for AADR. [Alliance Bernstein Files for Active ETFs.]
According to WCM Investment Management, their firm’s Investment Strategy Group (ISG) analyzes major themes in the global economy to identify sectors, industries and companies that will benefit. Some of these “tailwinds” include: demographics, global commerce, outsourcing, emerging global middle class and proliferation of technology.
WCM looks for non-U.S. quality growth businesses with an emphasis on quality. Some of the quality attributes include predictable, sustainable growth prospects, high returns on invested capital and little or no debt. The ISG will concentrate on well established businesses which tend to be multinational in scope, with an emphasis on large-caps. WCM focuses on traditional, conventional growth sectors like technology, consumer discretionary and staples and health care.
With diversification a top priority, WCM has parameters in place to ensure the portfolio remains diversified. “We own companies in at least 15 different industries, with maximum industry exposure capped at 15%, while sector size is capped at 45%,” says Duff Daniels, WCM’s managing director. The fund has a large-cap bias with a maximum of 30 holdings at any given time, with an emphasis on fundamental research rather than technical or quantitative. [Mutual Fund to ETF Conversions: What You Should Know.]
There’s a reason the holdings are kept to a relative few. “We want to own only our best ideas, and own them in a meaningful weighting in the portfolio. We don’t want to dilute the portfolio with inferior ideas just to own more names” Daniels says. “The large-cap bias means $3.5 billion or greater, with emphasis on quality growth attributes like high return on capital, low or no debt and predictability in the business model.”
Emerging market components are capped at 35% (although it’s historically been closer to 25%). “We are invested in large, established, multi-national businesses, many of which derive substantial revenue from the developed world, including the United States, despite their being domiciled in emerging markets countries.” [Misconceptions About Actively Managed ETFs.]
WCM is proud of their strategy and this new fund. “We’re not a firm that rolls out products every other day. This strategy presents a unique opportunity, and our partnership with BNY and AdvisorShares creates an investment vehicle in the ETF which makes the strategy available to all investors.”
For more information on new ETFs, visit our new ETFs category.
Max Chen and Heather Hayes contributed to this article.
