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Nope to the NOPE ETF

LewisBraham
edited February 2023 in Fund Discussions
I bet the Noble Absolute Return ETF's adviser is regretting this ETF's "NOPE" ticker symbol. According to the fund's web site--https://noble-funds.com/--it's: "An ETF built on the philosophy of saying NOPE to passive investing, NOPE to ignoring valuations, and NOPE to asset bubbles." The ETF has declined 63% so far in 2023: https://morningstar.com/etfs/arcx/nope/performance At first, before I saw the performance, I was intrigued by the strategy, and the fund's manager, but it's hard to imagine as experienced a manager going as wrong as this one:
Mr. Noble is the Founder and Managing Member of Noble-Impact Capital, LLC, an investment advisor and sub-advisor for the Noble Absolute Return ETF.

Prior to forming Noble-Impact Capital, Mr. Noble spent more than 40 years managing institutional investment portfolios.

He began his career at Fidelity Investments in 1981, working closely with legendary fund manager Peter Lynch before becoming the initial portfolio manager of Fidelity’s international equity fund earning a top ranking spanning six years. Mr. Noble then went on to manage two separate hedge funds, each of which grew to more than $1 billion in assets.
I sometimes think if you give an active manager too much freedom, they have just enough gunpowder to blow themselves and their shareholders to Kingdom Come. This is especially so if they have no one sitting in the board room to contradict them and say, "Wait a minute, are you sure that's a good idea?" The worst part is absolute return funds are supposed to be conservative in most cases, to generate positive returns in all market environments. Nope, not this one.

Comments

  • larryB
    edited February 2023
    Sometimes names say more than their creators meant them to say.
  • yogibearbullyogibearbull
    I have maintained that strategies such as absolute-return, long-short (with tilt) and market-neutral (50-50 L-S) sound appealing, but the manager(s) can make mistakes twice, on the long side AND on the short side. Then, it is like candle burning from the both ends.

    Looking at the chart of this new ETF (9/28/22- ), it had a spectacular rise in December (when SP500 fell) and a terrible crash YTD when SP500 rose. So, I would say that it bet net short and lost big by overstaying with that bet.
    https://stockcharts.com/h-sc/ui?s=NOPE&p=D&yr=1&mn=0&dy=0&id=p24793772873
    https://finance.yahoo.com/quote/NOPE/profile?p=NOPE
  • CrashCrash
    edited February 2023
    larryB said:

    Sometimes names say more than their creators meant them to say.

    The originally planned name to be given to the place where I lived in Spokane, attached to Gonzaga University, was: Sacred Heart Institute of Theology. Ya.

  • LewisBraham
    edited February 2023
    @yogibearbull An "absolute return strategy" is a generic term that means trying not to lose money rather than beat a benchmark, so it can come in many forms, including strategies that don't use any hedging like short bets or derivatives. A manager can seek absolute returns by holding cash for instance when he/she doesn't see any attractive buying opportunities. Also, long-short and even market-neutral funds come in many forms. So, I wouldn't rule the strategies out completely. What I will say is that managers very often overcharge for these strategies, and that, ironically, sometimes leads to excessive risk taking to overcome high fee hurdles. One form that risk taking takes is excessive leverage, which has burned many, even talented managers, in the past. See Long-Term Capital.
  • larryB
    Is that afiliated with the school in Texas, Sam Houston institute of Technology? I can’t believe I posted that.
  • yogibearbullyogibearbull
    The initial working name for George Mason U Law School was formal sounding "Antonin Scalia School of Law" until Twitter went wild with its possible abbreviation as xyz Law. Later, the name was changed to less typical/formal/common Antonin Scalia Law School. This was a last minute renaming fix as $20-30 million had been donated/pledged to George Mason on the condition of renaming Law School for Scalia.
  • yogibearbullyogibearbull
    edited February 2023
    While there are several ways to achieve absolute-return strategies, NOPE uses long-short strategies as noted in the Yahoo Finance Profile before, and in its prospectus below. Noble-Impact is a subadvisor under Toroso, so the next news may be that the subadvisor is fired, and after a few weeks, the ETF is shut - my guesses without any inside knowledge.

    https://www.sec.gov/Archives/edgar/data/1742912/000138713122009588/nope-497k_090722.htm

    "Principal Investment Strategies

    The Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve its investment objective by purchasing long positions in securities expected to increase in price and/or taking short positions in securities expected to decline in price. The Fund will generally have net exposure ranging from 100% short to 150% long. When the value of the Fund’s outstanding short positions is equal to the Fund’s net assets, the Fund is 100% short. The Fund’s net exposure at any time is the total of the Fund’s percentage long holdings (including leverage) less the percentage of its short holdings. For example, if the Fund’s long holdings totaled 60% and its short holdings totaled 40%, the Fund’s net exposure would be 20% (60%-40%)."

    Among the risks mentioned,

    "Principal Investment Risks
    ...
    New Sub-Adviser Risk. The Sub-Adviser is a newly formed entity and has no experience with managing an exchange-traded fund, which may limit the Sub-Adviser’s effectiveness...."

    A search on "benchmark" showed no mention at all in the prospectus. Conservative absolute-return strategies mention risk-free rate + some spread as the goal/benchmark although those may be missed too.

  • hank
    edited February 2023
    Might just as easily have gone the other way. Then $$ would have poured in. So many markets have been running “hot” and “cold” lately. Enough to give anyone the jitters. Point about leverage well taken however.

    ARKK +34% YTD. (NOPE - I don’t own it.)
  • carew388carew388
    Larry-another interpretation of $hit was Saddam Hussein International Terminal !
  • CrashCrash
    larryB said:

    Is that afiliated with the school in Texas, Sam Houston institute of Technology? I can’t believe I posted that.

    Grinning here.
  • CrashCrash
    carew388 said:

    Larry-another interpretation of $hit was Saddam Hussein International Terminal !

    +1.
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