AdvisorShares WCM/BNY Mellon Focused Growth ADR ETF (AADR) began trading July 21, 2010. Its objective is long-term capital appreciation that beats international benchmarks by focusing on high-quality, large-cap, non-U.S. companies via American Depositary Receipts (ADRs). This is the third actively-managed ETF introduced by AdvisorShares, all with different subadvisors.

WCM Investment Management, the fund’s subadvisor and manager, is guided by six principles in constructing AADR’s portfolio. The WCM Investment Process (pdf) summarizes these as:

  1. Concentration – holdings will typically be limited to 20-30 ADRs
  2. Tailwinds – buys businesses that benefit from global trends
  3. Economic Moats – businesses with distinct competitive advantages
  4. Culture – businesses with empowered, engaged, and incentivized employees
  5. Valuation – GARP: growth at a reasonable price
  6. Temperament – long-term holdings with a 3-5 year minimum holding period

Many investors and traders cannot readily agree on what constitutes “active management.” In the world of ETFs and mutual funds, it simply means that the fund does not track a publicly-disclosed index. As an actively-managed ETF, AADR will not track an index, although its annual turnover is targeted to be just 15%.

The AdvisorShares family of ETFs assesses larger fees than many other passive and actively-managed ETF products. According to the fact sheet (pdf), AADR will temporarily cap its expense ratio at 1.25% while paying a 0.75% management fee to WCM.

This may seem high, but AADR is actually the lowest priced ETF from AdvisorShares. AdvisorShares Mars Hill Global Relative Value ETF (GRV) has expenses capped at 1.49% while AdvisorShares Dent Tactical ETF (DENT) has a 1.50% cap in place.

The truly disturbing thing about all three of these ETFs is what appears to me to be a stealth load. The prospectus (pdf) states that if you purchase fund shares through a broker-dealer or other financial intermediary, the fund, the primary advisor, or the sub-advisor may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing broker-dealers or other intermediaries and your salesperson to recommend AdvisorShares ETFs over other investments. These are not 12b-1 fees, which are covered separately.

Since these payments are intended to be offset by the higher than normal expense ratios, the shareholders are ultimately making these payments. I’m not sure how this differs from the ongoing sales loads and trailing commissions of some mutual fund share classes.

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.