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A Hidden Gem Among Actively Managed ETFs

On the back of the success of the PIMCO Total Return ETF (BOND) and thanks to fresh interest in the advisor community, actively managed ETFs is starting to attract some interest among investors. Still, actively managed funds account for a scant percentage of the overall ETF universe, both in terms of total number of funds and assets under management.

For example, as of early April, there were over 1,445 U.S.-listed ETFs and only 58, or 4%, are active ETFs. Collectively, U.S.-listed active ETFs hold less than 1% of the industry’s assets, or $12.6 billion out of $1.46 trillion. [Managers Taking Great Interest in Actively Managed ETFs]

Given those statistics, it is not surprising that some actively managed ETFs fit the bill as “hidden gems.” The AdvisorShares WCM/BNY Mellon Focused Growth ADR ETF (AADR), which is fast approaching its third birthday, is a perfect example. AADR is small with just about $7.6 million in assets under management, but the fund’s unique methodology has lead to some benchmark-beating performances.

AADR’s objective is to provide “a high-quality, large-cap growth portfolio for the non-U.S. universe” and that is achieved by “by concentration (20–30 holdings) and a focus on traditional growth sectors such as technology, healthcare and consumer staples/discretionary,” according to AdvisorShares, one of the dominant names in actively managed ETFs.

While AADR is currently home to just over 30 holdings, a number that is small compared to many broad-based ETFs, that narrow focus has enabled the fund to top some marquee benchmarks. For example, one of the benchmark indexes AADR looks to beat is the MSCI EAFE Index, the underlying index for the popular iShares MSCI EAFE Index Fund (EFA) . In the past two years, EFA is up just a third of a percent, but AADR has gained almost 9% over the same time.

AADR’s top holdings currently include Taiwan Semiconductor (TSM), Ace (ACE), Canadian National Railway (CNI) and Potash (POT). The fund charges an annual fee of 1.25%, but is out-performance of important benchmarks could increase investor interest going forward. With AADR close to its third birthday and its alpha-generating potential, it is fair to say the fund’s small stature belies its overall utility to investors.

“As the fund approaches its three year anniversary, perhaps it will hit more institutional radars and engines such as Morningstar, which track and measure fund performance and risk analytics and often assign relevant ratings. For it would not be the first time that we see an ETF, actively or passively managed, hit important thresholds such as three and five year numbers, and then grow exceptionally, and in short order, in asset levels,” said Paul Weisbruch of Street One Financial last month. [Active International ETF Sports Impressive Performance]

AdvisorShares WCM/BNY Mellon Focused Growth ADR ETF

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.