New Active Multi-Strategy ETF from AdvisorShares Hits the Market

Despite the bullish trend for U.S. equity markets, investors are increasingly shying away from putting additional money to work in the space. Meanwhile, the prevailing ultra-low interest rates can only lead to a rising interest rate scenario in the future, thus tarnishing the appeal of fixed income instruments.

The markets are also likely to remain volatile in view of the Q2 earnings season ahead and a gloomy European economy. In such a situation, investors may be better off investing in multi-asset ETFs, which seek to provide a high current income level with long-term capital appreciation (read: 3 Low Risk ETFs for a Stormy Market).

In line with this principle, AdvisorShares has recently launched the AdvisorShares Sunrise Global Multi Strategy ETF under the symbol of MULT – which invests in multiple alternative investment strategies. The fund will be overseen by San Diego-based Sunrise Capital, having an established expertise in quantitative asset management.

MULT in Focus

This actively managed index uses a multi-model and multi-strategy quantitative investment approach to provide long-term capital appreciation. In order to do so, the fund holds both long and short positions in roughly 50 global markets, investing in various asset classes including stocks, bonds, commodities and currencies using futures, OTC currencies and ETFs and US Treasury securities.

MULT will be using various strategies like trend following, sector rotation, momentum and reversionary patterns to achieve its targeted return.

The fund currently holds long/short positions in 15 equity index futures including E-mini S&P 500, DJIA Mini and DAX Stock Index Futures. Further, it has exposure in bonds as well 11 different ETFs like XLY, IEF, XLP, XLE and XLI.

MULT also has exposure in long/short investments in 13 single currencies including the British pound, Swiss franc, Japanese yen and euro as well as in five cross rate/pair investments.

The fund’s active management approach and uses of multi-model and multi-strategy models renders it quite expensive with MULT charging a hefty 1.89% as annual fees.

How might it fit in a portfolio?

The fund is an excellent choice for investors seeking a one stop stop for various asset class exposure. The fund enables investors to hold a diversified portfolio of multiple assets and markets (read: 3 Multi-Asset ETFs for Juicy Yields and Stability).

By investing in varied asset classes, which have low correlation with the broader economy, the product seeks to reduce volatility and provide stability to a portfolio. MULT’s flexibility to switch in and out of different global markets and asset classes, depending on the opportunities available, might work out well for the fund.

The fund also uses a risk management mechanism, wherein it systematically converts its holding into US Treasury bonds. This strategy of moving its portfolio into cash is expected to provide downside protection to investors in case of unfavorable market conditions.

ETF Competition

The fund is another addition to the list of ETFs looking to replicate the trading strategies of hedge funds, though the space still has a limited number of options.

The fund might face competition from IQ Hedge Multi-Strategy Tracker ETF (QAI) – the most popular ETF in the hedge fund space. QAI tracks the IQ Hedge Multi-Strategy Index managing an asset base of $791.7 million (see all Hedge Fund ETFs).

The index seeks to provide exposure to a basket of hedge funds using different investment styles including long/short equity, global macro, market neutral, event-driven, fixed income arbitrage and emerging markets.
The fund charges 75 basis points annually and has returned 8.9% in the past one year.

Apart from this, the recently launched PowerShares Multi-Strategy Alternative ETF (LALT) might pose some stiff competition. The actively managed ETF intends to deliver higher risk-adjusted returns by investing in a blend of equity securities, financial futures contracts, forward currency contracts and other securities by charging 96 basis points (read: PowerShares Launches New Active Multi-Strategy ETF).

Though MULT is a good bet to invest in multiple assets across the globe, it is quite pricey. In fact, it is one of the most costly options not only in the actively managed ETF space, but also the most expensive choice in the hedge fund as well as in the long-short ETF space.

Thus, the fund’s success is a huge factor of the net returns that the fund manages to generate and if it does succeed in doing so, it might become a popular choice among investors looking for diversified multi-asset exposure in a single ETF.

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