Despite the flop of their first actively managed ETF, Grail Advisors launched four more today (October 2, 2009). The June 9 press release heralded these new ETFs as “the industry’s first traditional actively-managed ETFs using a single manager approach.”
RiverPark Advisors (RP) will be the primary sub-advisor for all four ETFs, and Wedgewood Partners will be a second sub-advisor on one fund. The four funds and their active managers are:
- RP Growth ETF (RPX) will be managed by Mitchell Rubin, Chief Investment Officer of RiverPark Advisors
- RP Focused Large Cap Growth ETF (RWG) will be managed by David A. Rolfe of Wedgewood Partners
- RP Technology ETF (RPQ) will be managed by Conrad van Tienhoven of RiverPark Advisors
- RP Financials ETF (RFF) will be managed by a team led by Morty Schaja, CEO of RiverPark Advisors and Mitchell Rubin, Chief Investment Officer of RiverPark Advisors
The three RiverPark managers all have experience with long/short funds, but these ETFs are long-only with the prospectus filing specifically disallowing short sales and margin borrowing.
According to the prospectus, the Grail website will include the ETFs’ holdings, the ETFs’ last annual and semi-annual reports (when available), pricing information about Shares trading on the Exchange, daily NAV calculations and a historical comparison of the trading prices to NAV. As of noon today the website did not contain any of this data. Since there is not any information on current holdings, anyone buying today is buying blind.
The RP website is also void of any new information today. Therefore, the following information was derived from the prospectus filing dated September 10, 2009.
All four ETFs seek long-term capital appreciation. Grail, and the subadvisors, have agreed to cap expenses at 0.89% for eleven months. A brief summary of the investment strategy of each ETF:
- RP Growth ETF (RPX) invests in industries that RP believes are the beneficiaries of long-term secular changes in the global economy and companies within those industries that are gaining market share and have, what RP believes to be, long-term sustainable competitive advantages and positions protected by strong barriers to entry. RP seeks companies with latent pricing power, expanding free cash flow and a high return on invested capital. RP also looks for companies with strong and experienced management teams with clear business objectives. RP believes it can gain an investment advantage not only through its primary research and by developing conviction in business models, but also because it invests with a long-term time horizon. The ETF expects to invest primarily in the securities of US companies, but it may also invest outside the US.
- RP Focused Large Cap Growth ETF (RWG) seeks to investment in securities that Wedgewood, the ETF’s sub-adviser, in market leaders with dominant products or services that are irreplaceable or lack substitutes in today’s economy. Wedgewood invests for the long term, and expects to hold securities, in many cases, for more than 5 years. Wedgewood next uses a valuation model to forecast future performance for sales, earnings and financial position to create absolute valuation projections for the company’s intrinsic value seeking to invest in a focused (20-30 securities) portfolio of its highest conviction ideas.
- RP Technology ETF (RPQ) invests in equity securities of companies that develop, produce or distribute technology-related products and services. These companies participate in many industries within the economy including industrial and business machines; communications; computer hardware and software; computer services and peripheral products; electronics; electronic media; internet; television and video equipment and services; satellite technology and equipment; and semiconductors. The ETF will primarily invest in companies with mid- to large- market capitalizations, but may invest in companies of any market capitalization. The ETF expects to invest primarily in the securities of US companies, but it may also invest outside the US.
- RP Financials ETF (RFF) invests in companies that participate in any aspect of the financial services industry, including, but not limited to, banking, lending, brokerage, exchanges, insurance, and money management, as well as real estate investment trusts (“REITs”). The ETF will primarily invest in companies with mid- to large- market capitalizations. The ETF expects to invest primarily in the securities of US companies, but it may also invest outside the US.
Grail’s first actively managed ETF, Grail American Beacon Large Cap Value ETF (GVT), was launched on May 4, 2009. It was billed as the first “qualitative” actively managed ETF. My initial review of GVT (entire article) stated that “I don’t think the market is prepared to accept this product at this time.” So far, that assessment has been spot-on. I’m looking a 1-minute interval chart GVT for the past 10 days and can literally see every trade. There are only about two dozen of them – typically just a couple of small trades per day and some zero volume days.
There are five major obstacles facing actively managed ETFs. Perhaps these new products will have a better fate, but I don’t foresee it at this time.