By Michael Johnston:
AdvisorShares added another actively-managed ETF to its lineup this week, rolling out a fund in partnership with an experienced money manager who also happens to be a popular financial blogger. The new AdvisorShares Global Alpha & Beta ETF (RRGR - News) will offer exposure to multiple asset classes, including domestic and international stocks and bonds, in an attempt to outperform popular benchmarks such as the S&P 500 and the Barclays Capital Aggregate Bond Index.
The new active ETF will be managed by Your Source Financial. Roger Nusbaum, author of the popular investing blog Random Roger, will serve as the Portfolio Manager for RRGR.
Under The Hood
At launch, the RRGR portfolio will feature a substantial allocation to domestic and international equities, indicating a fairly bullish outlook (stocks make up more than 80% of total assets at launch). Specifically, the asset class breakdown will be as follows (as of 7/10/2012):
- U.S. Equities: 50%
- Foreign Equities: 24%
- Emerging Markets Equities: 9%
- Cash: 12%
- Commodities: 4%
The Alpha & Beta ETF seems to be bullish on the technology sector in particular; the largest individual holding is the iShares Dow Jones U.S. Technology Sector Index Fund (IYW - News). After the 12% allocation to cash, the Vanguard Telecom Services ETF (VOX - News) is the next largest position at about 4%.
RRGR will rely on two primary “big picture” indicators to guide its investment decisions:
- 200-day moving average of S&P 500
- Yield curve [read some thoughts on why the yield curve is important here]
If the S&P is below its 200-day moving average or the yield curve is inverted, the portfolio will take a defensive position that prioritizes preservation of capital. From there, analysis will focus on which sectors, sizes, styles, or countries should be overweight or underweight relative to the S&P 500. Those allocation decisions are based on multiple factors, including an analysis of the current state of the market.
“As a top down-portfolio manager, we are continuously analyzing sector and market conditions within today’s global economy to select our various holdings, and to properly determine if our positioning is best utilized as being in or out of specific markets,” said Nusbaum. “By employing our broad and diversified investment approach within the transparency and efficiency of an actively managed ETF, we strive to benefit shareholders with a clearer and smoother ride throughout varying economic and market cycles.”
RRGR probably won’t have much appeal to short-term traders, but could potentially be a core holding for those building long-term, buy-and-hold portfolios (assuming, of course, that one subscribes to the ideas behind the asset allocation process). This ETF could also be used as a smaller “satellite” position for those looking to make minor allocations to active strategies that have the potential to generate alpha relative to traditional stock and bond benchmarks.
Total Portfolio ETFs
RRGR is part of a growing lineup of ETFs that offers access to multiple asset classes, essentially delivering a balanced portfolio through a single ticker. In addition to some actively-managed ETFs such as [[GTAA]], there are a number of funds that are constructed to be appropriate for investors of varying risk tolerance (e.g., conservative or aggressive) as well as “target date” ETFs that shift asset allocation as a specified retirement date approaches.
RRGR will charge a bottom line expense ratio of 1.40%, which is towards the higher end of the range for products in the Diversified Portfolio ETFdb Category (though in line with other actively managed ETFs).
Disclosure: No positions at time of writing.
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