An Active ETF Strategy That Hones In on Deep Value Opportunities

The Emles Alpha Opportunities active long/short equity exchange traded fund strategy combines deep-value investing and catalyst trading to help investors enhance a traditional investment portfolio mix.

In the recent webcast, Looking For Alpha? Dig Into Deep Value Investing, Nathan G. Miller, senior vice president and portfolio manager at Emles Advisors, and Jillian DelSignore, managing director and head of ETFs & indexing at FLX Distribution, explained that value investing is contrarian, independent thinking that targets low-multiple based on normalized earnings and multiples. The strategy seeks to understand the company, industry, and cycle, along with levering what those companies can pull. Additionally, it will search for overlooked opportunities, buying stocks at the right valuation, then have patience for reversion to the mean.

The value investment style takes on a long-term approach where committed capital historically has outperformed short-term profit. Whether it’s with P/E, EBITDA Multiple, FCF yield, etc., the numbers tell the same story over time: If you take a long-term approach, long-term committed capital eventually outperforms short-term profit seeking.

Specifically, the recently launched Emles Alpha Opportunities ETF (EOPS) can help investors better target these value opportunities and hedge against market risks along the way. The strategy is managed by Nathan Miller, former equity long/short portfolio manager at NGM Asset Management, Citadel Investment Group, and RBC Capital, providing institutional investors with access to a hedge fund strategy through an ETF structure. Actively managed ETFs, like EOPS, are also attractive, as they are transparent in publishing daily holdings and are tax efficient through the in-kind creation and redemption process.

EOPS seeks to mitigate the downside/hedging with the ability to go long and short. Regardless of the macro environment (bull or bear markets), the fund will seek to provide a return by pivoting its long-short investment exposure accordingly. The strategy can utilize leveraging (upsizing) core conviction via options, and it has the flexibility to maneuver/navigate uncertain environments through options, shorts, hedges, concentration, exposures, and a wider assortment of assets to choose from, which may be important in market sell-offs like what happened during the pandemic.

The active management team also looks for attributes like high ROE/ROC, ability to reinvest internally in organic growth or externally via accretive M&A, owner-operators, good capital allocation decisions, low valuation, and high barriers/moats — best in breed companies.

EOPS is an equity long/short strategy that combines deep-value investing and catalyst trading. Miller has implemented the underlying fund strategy for hedge funds and family offices for over 20 years. EOPS invests in value stocks of North American companies, focusing on “old economy” sectors like industrials, consumer discretionary, and materials. While assets are deployed primarily across equities, the fund has the flexibility to use options, indexes, and other transparent and liquid instruments to seek to generate alpha and mitigate risk.

The fund’s ability to take both long and short positions allows for return potential and risk management on both sides of the equation. As such, EOPS seeks to be an effective portfolio option for investors looking to enhance their total return potential across market cycles and preserve capital in more challenging markets.

“Emles’ Alpha Opportunities strategy seeks to emulate a combination of Buffett & SAC. Each of these two different styles (value vs. event-driven) have long-term return streams. We seek to benefit from both approaches, while optimizing the portfolio based on the environment / backdrop and opportunity set,” according to Emles.

Investors who are considering the strategy may note that EOPS can be complementary to most portfolios. The ETF may provide downside mitigation and exposure to event-driven holdings, tends to avoid material exposure to FAANG or momentum/tech stocks, may achieve better risk-adjusted returns when adding to most conventional portfolios, and negative momentum (reversion to the mean) moves portfolios out of the efficient frontier curve.

Financial advisors who are interested in learning more about the active long/short equity strategy can watch the webcast here on demand.