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Manager Change at Buyback ETF Takes Investors by Surprise

Zacks Equity Research

It’s not often when the ETF world sees a fund manager getting fired despite performing well. Late last month, a leading sponsor of actively managed ETFs, AdvisorShares, announced its decision to replace TrimTabs Asset Management, the sub-advisor of the AdvisorShares TrimTabs Float Shrink ETF TTFS. Effective from July 1, 2016, Santa Monica, CA-based Wilshire Associates will serve as the new sub-advisor of TTFS, which will be renamed as AdvisorShares Wilshire Buyback ETF but will retain its ticker symbol (read: What is in Store for Buyback ETFs Ahead?).

AdvisorShares stated that the fund still seeks to meet the same investment objective, but the appointment of new sub-advisors will lead to lower overall costs, including management fee. Currently, the cost of the fund is somewhat high at 99 bps.

However, this surprising manager change was not well received by investors considering the fund saw net outflows of $11.3 million in June so far, as per ETF.com. As of now, the fund has AUM of $171.27 million. The fund has a good track record of beating its benchmark and has generated a return of 19.22% since its inception (on a quarterly basis) as compared to its benchmark Russell 3000 Index’s return of 16.73%. Additionally, TTFS jumped 3.81% in the first quarter of 2016.

Considering that the fund has earned a five-star rating from Morningstar Inc. and positive ratings from several other research firms, the change of the sub-advisor has not gone down with TrimTabs, which has raised questions about the appropriateness of the decision.

TTFS is an actively managed product within the space. It is based on Trim Tabs’ research on stock prices being a function of supply and demand rather than value. From a sector perspective, Information Technology takes the top spot at 24%, followed by Industrials (21%) and Consumer Discretionary (20%).

The buyback space has several big names including PowerShares Buyback Achievers PKW with AUM of $1.6 billion. PKW tracks the NASDAQ US BuyBack Achievers Index, which comprises companies that have repurchased 5% or more of their common stock in the trailing 12 months. The fund holds a basket of 231 stocks and charges 64 basis points as fees (see Total Market U.S. ETFs here).

Another buyback ETF SPDR S&P 500 Buyback ETF SPYB tracks the performance of the S&P 500 Buyback Index and holds 100 stocks in its basket. The fund charges 35 bps in fees. The fund has about $9.3 million in assets.

Still investors who want a fund managed by TrimTabs may get it soon with TrimTabs planning to offer the Float Shrink strategy in a separately managed account format with a lower minimum investment and lower fees to accommodate its clients (read: Beat the Market with Buyback ETFs).

However, there is a note of caution. Although buybacks lower the outstanding share count, thus leading to higher earnings per share, if companies are buying back their own shares at steep prices and accessing the debt market to finance that buyback, the move is less likely to be rewarding.

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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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Zacks Investment Research
 
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