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Why do Active managers buy Passive ETF's - Pear Tree Polaris Foreign Value Small Cap?
It may be a liquidity issue more than anything else. Perhaps the manager wanted to put some cash to work quickly and wouldn't be able to do so in some of the small cap names. I see this more as a temporary move.
It may be a liquidity issue more than anything else. Perhaps the manager wanted to put some cash to work quickly and wouldn't be able to do so in some of the small cap names. I see this more as a temporary move.
Good observation.
Agreed. I've often heard managers say they own etfs as an alternative to holding cash. Particularly in such a fund as QUSOX the etf would certainly be a lot more liquid than its typical holdings if it ever wanted to sell something. FWIW, I've bought a little of QUSOX. With the possible exception of Grandeur Peak, which is entirely closed now, it looks like the best of the small cap international set to me.
Ditto Vert. I began a small position in Qusox after January's commentary brought the fund to my attention. Thanks David! I agree that with grandeur peak funds all closed, Qusox seems to be the best alternative plus it complements those funds since it is small cap value.
Yea it bugs me very much. I could maybe understand in a fund with low aum. But not your largest holding. I think the question deserves a explanation from the fund manager. Is it just temporary
Here's an even more puzzling one: Homestead Small Company (HSCSX) top two holdings are iShares Core S&P Small Cap (IJR) at 4.9% and iShares Russell 2000 Value (IWN) at 4.76% of assets, respectively.
I have no special access or insights into the QUSIX strategy sessions, so I can offer only some speculative guesstimates.
The QUSIX overarching evaluation and selection process is a multi-.stage, disciplined, and bottom-up approach. It starts with a huge candidate base and critically sorts and eliminates these candidates to under 100 holdings.
It holds a cash reserve or a cash equivalent. Given the near zero current cash returns, I suspect their ETF position is their cash equivalent. They anticipate a positive foreign small cap return in excess of a pure cash position. So do I.
At the present time, the decision team can not identify an alternate holding that satisfies their criteria. When it does, they will use their ETF holding to purchase it. A less than 4% cash equivalent reserve is not too outlandish.
For what it's worth, that's my uninformed guesstimate.
Comments
Good observation.
Great question!
I have no special access or insights into the QUSIX strategy sessions, so I can offer only some speculative guesstimates.
The QUSIX overarching evaluation and selection process is a multi-.stage, disciplined, and bottom-up approach. It starts with a huge candidate base and critically sorts and eliminates these candidates to under 100 holdings.
It holds a cash reserve or a cash equivalent. Given the near zero current cash returns, I suspect their ETF position is their cash equivalent. They anticipate a positive foreign small cap return in excess of a pure cash position. So do I.
At the present time, the decision team can not identify an alternate holding that satisfies their criteria. When it does, they will use their ETF holding to purchase it. A less than 4% cash equivalent reserve is not too outlandish.
For what it's worth, that's my uninformed guesstimate.
Thank you for your question.
Best Wishes.
David