We are beginning of the annual insanity. The Securities and Exchange Commission, by law, gets between 60 and 75 days to review proposed new funds before they can be offered for sale to the public. Fund companies anxious to have a new fund up and running by December 31st need to have it in the hopper by mid-October at the latest. The late September filings – we found 34 active funds and ETFs in registration – are the beginning of the annual flood.
Every month the ETF industry breathlessly trots out a few ideas designed to seize the moment. Think: “Virtual Work and Life ETF.” This month’s leading candidate is the Direxion World Without Waste ETF that seeks to invest in companies that do not use virgin materials.
The other illustrative filing is for Amplify CrowdBureau® Online Lending and Digital Banking ETF, which was formerly Amplify CrowdBureau® Peer-to-Peer Lending & Crowdfunding ETF. Two things stand out as worth note. First, Amplify is basically liquidating a very bad fund. The original CrowdBureau® P2P ETF turned $10,000 invested at its inception in May 2019 into $5,000 in September 2020. Second, the fund is not being “liquidated,” it’s being “repurposed.” The ability to repurpose an existing fund to a sometimes dramatically different objective (think “water resources” to “cloud computing”) without the endorsement of fund’s investors and without reporting a liquidation. That latter factor has long allowed the ETF industry to celebrate its vibrancy.
We have long noted that the apparent vibrancy of the ETF industry is somewhat illusory: the huge bulk of the industry’s assets are controlled by a tiny handful of mutual fund companies (BlackRock Vanguard, Invesco, State Street…) while most independent ETFs hover on the verge of insolvency. The challenges to those economics are likely to be accelerated as fund companies use the new non-transparent / active ETF wrappers to allow themselves to launch clones of their most successful mutual funds in new, lower cost, no-minimum investment ETF wrappers. This month sees just such a movement with the launch of the ETF version of four Fidelity funds, including the once-iconic Fidelity Magellan (FMAGX) fund.
[Upholdings] ETF
[Upholdings] ETF, an actively-managed ETF, seeks long-term capital growth. And yes, the brackets around the name appear to be part of the name. The plan is to buy the stocks which “offer the most attractive risk and return potential.” This is the conversion of a hedge fund with a fine, but only an 18 month long, track record. The fund will be managed by Upholdings Group LLC. Its opening expense ratio is 0.60%.
AdvisorShares Q Portfolio Blended Allocation ETF
AdvisorShares Q Portfolio Blended Allocation ETF, an actively-managed ETF, seeks to maximize total return. The plan is to use the Q Methodology (Star Trek fans perk up, hoping of tapping the power of the Q Continuum) to create an all asset class ETF of ETFs. “Q Methodology™ generates a set of optimal portfolios that offer the highest expected return for a defined level of tail risk (which is the risk that an investment’s return will move significantly beyond expectations, i.e., more than three standard deviations from its mean) and expected drawdown.” The fund will be managed by Ron Piccinini, Ph.D. He holds a doctorate in finance from the University of Nebraska-Lincoln. Its opening expense ratio has not been released.
American Beacon AHL TargetRisk Core Fund
American Beacon AHL TargetRisk Core Fund will seek capital growth. The plan is to gain exposure to global equities and bonds through futures contracts and to use computers to manage the fund’s volatility; they’re looking to make as much money as they can with a volatility level of 10%. At base, they try to invest more in stable markets and less in volatile ones. The fund will be managed by AHL Partners LLP. Its opening expense ratio is 1.39% with a nominal front-load of 5.75%, and the minimum initial investment will be $2,500 for “A” shares.
American Century Quality Preferred ETF
American Century Quality Preferred ETF (QPFF), an actively-managed ETF, seeks total return. The plan is to buy and frequently trade, preferred stock, hybrid preferred securities that have characteristics similar to both preferred stock and debt securities, floating-rate preferred securities, corporate debt securities, and convertible securities. The managers have not been named and its opening expense ratio has not been disclosed.
American Century Low Volatility ETF
American Century Low Volatility ETF (LVOL), an actively-managed ETF, seeks capital appreciation. The plan is to use quantitative models to select securities with attractive fundamentals that they expect will provide returns that will reasonably track the market over the long term while realizing less volatility. The managers have not been named and its opening expense ratio has not been disclosed.
American Century Quality Convertible Securities ETF
American Century Quality Convertible Securities ETF (QCON), an actively-managed ETF, seeks total return. The plan is to buy and frequently trade, convertible securities using a combination of fundamental research and quantitative screens. The managers have not been named and its opening expense ratio has not been disclosed.
ATAC US Rotation ETF
ATAC US Rotation ETF (RORO), an actively-managed ETF, seeks total return. The plan is to have a portfolio that switches between risk-on and risk-off postures. During the risk-on phase, the managers will seek 130% exposure to US small-cap stocks and US large-cap cyclical stocks. They’ll do that by investing in leveraged ETFs. During the risk-off phase, they will invest in long-duration US Treasury securities, also through ETFs. The fund will be managed by Michael Venuto and Michael Gayed who also manage ATAC Rotation Fund which is up 50% YTD but charges 1.95%. The ETF’s opening expense ratio has not been disclosed.
Ballast Small/Mid Cap ETF
Ballast Small/Mid Cap ETF, an actively-managed ETF, seeks long-term capital appreciation. The plan is to invest in high quality, financially sound companies that have the ability to execute their business plans in both favorable and unfavorable environments. The upper size limit is $15 billion. The fund will be managed by Ragen Stienke, a former Westwood manager. His $10 million separate account composite has a five-year record that just about matches its benchmark. Its opening expense ratio is 1.10%.
BlackRock Defensive Advantage U.S. Fund
BlackRock Defensive Advantage U.S. Fund will seek long-term capital appreciation. The plan is to buy US mid- to large-cap stocks using a “defensive investment style, seeking to provide downside protection with upside potential through active stock selection, risk management, and diversification.” There’s very little explanation for what that means, and the prospectus still contains a bunch of blank spaces. They can also use options to hedge the portfolio. The fund will be managed by a four-person BlackRock team. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $1,000. The same prospectus includes its Defensive International and Defensive Emerging Markets siblings.
Fidelity Magellan ETF
Fidelity Magellan ETF, an actively-managed, non-transparent ETF, seeks capital appreciation. The plan is to do the same thing the Magellan Fund has been doing: invest in a mix of larger-cap growth and value stocks. The fund will be managed by Tim Gannon and Sammy Simnegar. Its opening expense ratio has not been released. The same prospectus announces the launch of Growth Opportunities, Real Estate Investment, and Small-Mid Cap Opportunities ETFs.
Inspire Faithward Mid Cap Momentum ESG ETF
Inspire Faithward Mid Cap Momentum ESG ETF, an actively-managed ETF, seeks to outperform the broader US midcap stock market. The plan is to buy “the most inspiring biblically aligned” mid-cap growth companies whose stocks have price momentum. The fund will be managed by SevenOneSeven Capital Management, LTD. Its opening expense ratio is 0.85%. The same prospectus covers a sibling large-cap fund.
Invesco Focused Discovery Growth ETF
Invesco Focused Discovery Growth ETF, an actively-managed, non-transparent ETF, seeks capital appreciation. The plan is to invest, primarily, in 50 domestic mid-cap growth stocks. The fund will be managed by Ronald J. Zibelli, Jr., and Justin Livengood. Its opening expense ratio has not been released.
Invesco Real Assets ESG ETF
Invesco Real Assets ESG ETF, an actively-managed, non-transparent ETF, seeks capital appreciation. The plan is to invest, primarily, in real estate, infrastructure, natural resources, and timber which are domiciled in North America and which meet “high ESG standards.” The fund will be managed by a four-person team. Its opening expense ratio has not been released.
Invesco Select Growth ETF
Invesco Select Growth ETF, an actively-managed, non-transparent ETF, seeks capital appreciation. The plan is to invest, primarily, in 25-30 companies whose “earnings or revenue growth driven by long-term secular trends and themes.” The fund will be managed by Erik Voss and Ido Cohen. Its opening expense ratio has not been released.
Invesco US Large Cap Core ESG ETF
Invesco US Large Cap Core ESG ETF, an actively-managed, non-transparent ETF, seeks capital appreciation. The plan is to buy high quality, ESG-screened large-cap US stocks. The fund will be managed by Mani Govil, Belinda Cavazos, and Paul Larson. Its opening expense ratio has not been disclosed. Ms. Cavazos was formerly a manager at Boston Trust Walden Company; her colleagues worked for OppenheimerFunds.
Harding Loevner Chinese Equity Portfolio
Harding Loevner Chinese Equity Portfolio will seek long-term capital appreciation. The plan is to buy stock in Chinese firms that are “well managed, financially sound, fast-growing, and strongly competitive.” (Duh. I mean, really, how many people target poorly managed, nearly bankrupt …) The fund will be managed by Pradipta Chakrabortty, Jingyi Li, and Wenting Shen. With a $100,000 minimum, its charms are available only to the affluent. The expense ratio has not been released.
Lord Abbett Mid Cap Innovation Growth Fund
Lord Abbett Mid Cap Innovation Growth Fund will seek long-term capital appreciation. The plan is to buy mid-cap growth stocks; the team “may consider” ESG factors in their selection. Nary a word about the whole “Innovation” focus. The fund will be managed by a five-person Lord Abbett team. Its opening expense ratio will be 1.06% for “A” shares and its minimum initial investment will be $1500. That’s reduced to $250 for “Invest-a-Matic Accounts.”
Setanta EAFE Equity Fund
Setanta EAFE Equity Fund will seek long-term capital appreciation. The plan is to use a “bottom-up stock selection process that looks for value stocks of well-run and financially sound companies.” They target holding 35-50 stocks. The fund will be managed by Setanta Asset Management Limited. Its opening expense ratio has not been disclosed, nor has its minimum initial investment.
Simplify Growth Equity PLUS Convexity ETF
Simplify Growth Equity PLUS Convexity ETF, an actively-managed ETF, seeks capital appreciation. The plan is to invest in the NASDAQ index with a convexity option overlay. The managers are fairly sure that they can configure their options to both add upside and limit downside. The fund will be managed by Paul Kim and David Berns. Mr. Kim uses to be a portfolio manager for Principal Global Investors and Mr. Berns was a managing director at Nasdaq Dorsey Wright. Its opening expense ratio is 0.45%. The same prospectus covers its two siblings, Simplify Growth Equity Plus Downside Convexity ETF and Simplify Growth Equity Plus Upside Convexity ETF
Simplify Volt Fintech Disruption ETF
Simplify Volt Fintech Disruption ETF, an actively-managed ETF seeks capital appreciation. The plan is to invest in firms that possess technologies that seek to increase the efficiency of providing and delivering financial services. The manager can then use an options overlay to mitigate market volatility. The fund will be managed by Paul Kim and David Berns. Its opening expense ratio has not been released. The same prospectus covers funds seeking to exploit disruptive technologies in pop culture, robocars, and cloud and cybersecurity.
SmartETFs Advertising & Marketing Technology ETF
SmartETFs Advertising & Marketing Technology ETF, an actively-managed ETF, seeks long-term capital appreciation. The plan is to invest in a global, equal-weight portfolio of 30 advertising and marketing companies. The fund will be managed by Penserra Capital Management, LLC. Its opening expense ratio is 0.68%.
SPAC and New Issue ETF
SPAC and New Issue ETF, an actively-managed ETF, will seek total return. The plan is to buy “shares of newly listed initial public offerings of Special Purpose Acquisitions Corporations (SPACs) that have a minimum capitalization of $100 million. A SPAC is a blank check company formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses.” Quite trendy. The fund will be managed by Matthew Tuttle of Tuttle Tactical Management, who seems to launch (or at least file for permission to launch) a fair number of funds and ETFs. Its opening expense ratio has not been disclosed.
Sprucegrove International Equity Fund
Sprucegrove International Equity Fund will seek long-term capital appreciation. The plan is to buy stock in firms with a history of above-average financial performance, a secure financial position, reputable management, and a growth opportunity. This is the conversion of an unnamed Master Fund which launched in 1985, changed ownership in 1994, and has a great 35-year record, an okay 10-year record, a soft five-year record, and a poor one-year one. The fund will be managed by Arjun Kumar and Shirley Woo. Its opening expense ratio is 0.95%, and the minimum initial investment will be $100,000 for Investor shares.
Virtus KAR Small-Mid Cap Growth Fund
Virtus KAR Small-Mid Cap Growth Fund will seek long-term capital appreciation. The plan is to invest in 20-35 small- and mid-capitalization stocks with lower overall risk characteristics. The fund will be managed by Julie Biel, Senior Research Analyst at KAR. Its opening expense ratio has not been released, and the minimum initial investment will be $2,500.
Virtus SGA New Leaders Growth Fund
Virtus SGA New Leaders Growth Fund will seek long-term capital appreciation. The plan is to invest in ESG-screened companies that have a high degree of predictability, strong profitability, and above-average earnings and cash flow growth. At least 35% will be invested in the US and up to 40% might be invested in the emerging markets. The managers have the option of hedging the portfolio’s currency exposure. The fund will be managed by Sustainable Growth Advisers, LP. Its opening expense ratio has not been disclosed, and the minimum initial investment will be $2,500, reduced to $100 for tax-advantaged accounts, and those with systematic purchase plans.
Wasatch Greater China Fund
Wasatch Greater China Fund will seek long-term capital growth. The plan is to construct an all-cap portfolio of companies economically tided to “the Greater China region.” The prospectus helpfully warns us that the fund may invest “greater than 5% in a particular region, including China, Hong Kong, and Taiwan.” One feels a “duh” coming on. The fund will be managed by a five-person team. Its opening expense ratio is 1.50%, and the minimum initial investment will be $2,000, reduced to $1,000 for accounts with an automatic investing plan.
