AdvisorShares recently launched its first ETF product, the actively-managed DENT Tactical ETF (NYSE: DENT). This “ETF of ETFs” uses Harry Dent’s relative strength models to specify entries and exits. Dent’s analysis is rooted in the Dent Method – an approach which uses changes in demographics to forecast future economic trends. AdvisorShares states that the fund seeks to achieve its investment objective of long-term capital growth “by identifying, through proprietary economic and demographic analysis, the overall trend of the U.S. and global economies and how consumer spending patterns may change based on this analysis. Then, the portfolio manager implements an investment strategy using ETFs across several asset classes such as domestic and foreign equities, domestic or foreign fixed income or commodities”.
Actively-managed ETFs do not attempt to track an index like most other ETFs but instead, attempt to generate excess returns based on individual manager performance. While the passive versus active management debate rages on, there is certainly no lack of demand for actively-managed products. And by using the ETF structure, active managers can reduce the operational costs of managing the fund, thereby providing lower costs to investors when compared to actively-managed mutual funds. In addition, these ETFs can offer greater tax efficiency and easier accessibility than mutual funds (a number of which are only offered through certain brokers whereas ETFs can be bought and sold through just about any broker).
One potential downside to actively-managed ETFs is that the transparency they provide (holdings must be reported daily) could minimize any advantage that the fund manager believes they have. Outside investors can track the moves of the fund, potentially front-running entries and exits. However, many in the industry aren’t overly concerned that this will have a meaningful impact on the performance of actively-managed ETFs and could be perceived as an advantage in an environment where investors are demanding greater transparency.
AdvisorShares has also filed preliminary prospectuses to launch two additional actively-managed ETFs – the WCM/BNY Mellon Focused Growth ADR ETF and Legacy Long/Short ETF.
