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New Float Shrink ETF on the Horizon from TrimTabs?

Sanghamitra Saha

It seems that TrimTabs Asset Management could not get over the idea of a Float Shrink ETF, even after being discharged as the sub-advisor of AdvisorShares Trim Tabs Float Shrink ETF TTFS. In fact, TrimTabs filed for a new and definitely own version of the Float Shrink fund.

Investors should note that AdvisorShares opted out of TrimTabs because the appointment of the latter was pricey, lead to higher overall costs, including management fee. The new sub-advisor Wilshire Associates will result in lower charges (read: Manager Change at Buyback ETF Takes Investors by Surprise).

What is Float Shrink?

The term defines a fall or shrinkage in the number of a publicly traded company’s shares accessible for trading, as per investopedia. This can be done by various methods including stock buyback, reverse split or an investor buying a huge stake in a company, per the source. However, buyback is the most common activity related to float shrink.

Let’s take a look at the newly filed TrimTabs fund.

Inside New Float Shrink ETF

As per the prospectus, the fund looks to “generate long-term returns in excess of the total return of the Russell 3000 Index, with less volatility than the Index.” It will be actively managed in nature.

The fund intends to attain this objective by investing in stocks with strong liquidity and fundamental characteristics that have historically given above-average performances. In that vein, TrimTabs set a quantitative stock pick model so that proper allocation decisions can be made.

These stock-picking criteria are – the decline in stocks’ outstanding shares over the past 120 days, the rise in free cash flow as well as the decline in leverage over the said timeframe. The higher these scores of the stocks, the more will be the chances of their being included in the fund.

The ticker code and expense ratio of the fund are yet to be disclosed.

How Does it Fit in a Portfolio?

Understandably, if share counts fall, then there will be a rise in earnings per share and return on equity. Also, repurchasing shares givesa positive indication about the health of company and its confidence in the future value of its shares (read: Invest in These ETFs to Capitalize on Cash Strength).

Apart from bolstering shareholder value, this strategic move will also lift the relatively undervalued share price. Moreover, the step is also a perfect medium for the use of excess cash. This is also tax-efficient mode of enhancing shareholder value. 

TrimTabs was disheartened by AdvisorShares’ decision and commented that “shareholders have expressed disappointment that they would now be forced to accept a different investment strategy than what they originally purchased.”

Since TTFS had seen success under the roof of TrimTabs, there is all the more reason for the asset manager to replicate the achievement.

Competition

First of all, the fund will face direct competition from its erstwhile fund TTFS. Apart from this, there are other buyback ETFs including PowerShares Buyback Achievers PKW and SPDR S&P 500 Buyback ETF SPYB(read: What is in Store for Buyback ETFs Ahead?)

However, since the underlying indices of PKW and SPYB the NASDAQ US BuyBack Achievers Index and the S&P 500 Buyback Index, respectively – are different from that of the newly filed TrimTabs fund, the product should be able to carve out an identity for itself.

On the expense ratio front, TTFS, PKW and SPYB charge 99, 64 and 35 bps in fees, respectively. So, TrimTabs has to charge as competitively as it can to make a killing.

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TRIMTB-FLT SHRK (TTFS): ETF Research Reports
 
PWRSH-BYBK ACHV (PKW): ETF Research Reports
 
SPDR-S&P500 BB (SPYB): ETF Research Reports
 
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