Based on information available, the fund is targeted as an active manager compliment or replacement. The strategy will be active picking from a large variety of stocks. The parameters and constraints on where it can invest are designed to be a core large cap portfolio exposure. Watson won’t be allowed to allocate to anything it wants. Based on these initial reviews, investors that choose to allocate to AIEQ should gauge its success versus the S&P 500 metrics.
The success of this ETF will ultimately depend on its outcome. The ETF itself will find its way into the same screening processes and comparisons that other active managers and new strategic beta funds, meant to target traditional active management, find themselves. One of the challenges that has faced recent strategic and factor models has been their ability to perform in line with ex-ante versus ex-post metrics based on their indexes. Without an index behind the method, there will be an observation period for AEIQ for investors to gain a level of comfort with the approach. They need to know what to expect and if it can perform in line.
As an asset manager whose job it is to evaluate ETFs, this will be part of our process too. I think this marks an exciting time in the investment management space, for investors and advisors alike. This will be the first of many.
Bryan Novak is the Senior Managing Director & Portfolio Manager at Astor Investment Management, a participant in the ETF Strategist Channel.
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