AdvisorShares, one of the largest sponsors of actively managed exchange traded funds, said today that the TrimTabs Float Shrink ETF (NYSEArca: TTFS) earned the prestigious five-star rating from Morningstar.
TTFS, which had $197.5 million in assets under management as of Feb.22, received the five-star Morninstar rating for its its three-year and overall risk adjusted performances from inception through October 31, 2014 out of 347 funds in Morningstar’s Mid-Cap Blend category, according to a statement issued by AdvisorShares.
Managed by California-based TrimTabs Asset Management, is much more than a dedicated buyback ETF. Rather, the ETF’s management team subscribes to a holistic approach that includes emphasizing free cash flow as part of TTFS’ stock selection methodology. [Float Shrink ETF Comes of Age]
Buybacks are just one part of the TTFS methodology. It is one thing for a company to make a buyback announcement, but it is another thing altogether for that company to resist the temptation of increasing its float with executive stock options, which can mitigate the float shrink impact of the announced repurchase program. [Behind the Scenes With the Float Shrink ETF]
How companies fund buybacks and reduce net shares outstanding are also important ingredients in the TTFS stock selection methodology. For example, the ETF, which screens for robust free cash flow, shies away from highly leveraged firms that fund buybacks with new debt.
“Utilizing a quantitative algorithm, the manager screens approximately 3,000 U.S. companies on a daily basis and then invests in their highest ranked 100 stocks for TTFS’ equal-weighted portfolio. TrimTabs’ liquidity research shows that companies using free cash flow to shrink the trading float of shares create a potentially profitable supply and demand imbalance as more money chases fewer shares, and TTFS’ performance reinforces that notion. Since its inception on October 4, 2011, and through October 31, 2014, TTFS has outperformed the Russell 3000 Index,” according to AdvisorShares.
As of Jan. 31, TTFS allocated 22% of its weight to the technology sector and 20% to consumer discretionary stocks. The materials, financial services and health care sectors also had double-digit allocations in the fund as of Jan. 31, according to issuer data.
TrimTabs Float Shrink ETF
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of TTFS.