Grail Files For 4 New Actively Managed ETFs

June 09, 2009

Grail Advisors has filed to bring out four more classic actively managed ETFs.


A little more than a month since coming out with the first traditional actively managed exchange-traded fund, Grail Advisors is making plans to launch four more.

In a filing dated June 8, the San Francisco-based asset manager says that it wants to complement the Grail American Beacon Large Cap Value ETF (NYSE Arca: GVT). That fund opened on May 4 and differs from others either currently on the market or in registration in that it implements a purely qualitative stock selection process. (See related article here.)

Each in the new group will do much the same. They'll be listed on the NYSE Arca exchange and charge expense ratios of 0.89% apiece. The proposed new ETFs are the:

  • RP Growth ETF. According to the prospectus, RP uses a “fundamental research driven approach to identifying those industries and companies with the strongest growth prospects for revenue, earnings and/or cash flow over the medium- and long-term and seeks to buy stock in those companies at attractive valuations.” Also, the ETF’s manager may invest in companies of any market capitalization and in any industry. The ETF expects to invest primarily in U.S. stocks, but it may also invest overseas.
  • RP Focused Large Cap Growth ETF. This will use Wedgewood’s qualitative and quantitative analytical processes to pick 20-30 companies with $5 billion or more in market cap size. The manager will look for above-average growth prospects, and while focusing on domestic names, can also wander outside U.S. borders. According to the prospectus, “Wedgewood seeks investments 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 five years.” It adds that Wedgewood’s investment process “involves rigorous qualitative and quantitative inputs as well as a strict valuation and risk discipline.”
  • RP Financials ETF. The subadviser plans to use fundamental research to pick financial services companies at attractive valuations. The ETF will primarily invest in companies with mid-to-large market capitalizations of between $2 billion and $150 billion. It will focus on U.S. markets but can also venture overseas.
  • RP Technology ETF. Much the same in terms of looking for mid- and large-cap names, this ETF can also wander outside the U.S. It will focus on fundamental analysis and picking stocks with attractive valuations across almost every major sector of technology.

Unlike GVT, the new active ETFs will have a single subadviser. That will be RiverPark Advisors. One of the new ETFs, the RP Focused Large Cap Growth ETF, will have a secondary subadviser as well—Wedgewood Partners Inc.

But in an interview on Tuesday, Grail Chief Executive Bill Thomas said that RiverPark will serve as the primary adviser on that fund and handle running the portfolio.

RiverPark Advisors was founded by Morty Schaja, the former president of Ron Baron’s asset management firm. He opened RiverPark in 2006 with a long-short equity hedge fund. That has since closed and the firm is now specializing in long-only private accounts and ETFs.

“We believe the mutual fund model, which is almost 100 years old, is an outdated structure. In this 24/7 world, we’re very excited to be involved in ETFs,” said Schaja, from his New York City offices on Tuesday.

Grail's Thomas added that going with a single-adviser strategy is "the next step in the evolution of the ETF space.”

“Now, financial advisers and individual investors will have a broad choice of both team-managed and single-manager actively managed ETFs to choose from,” said Thomas.

He says that this will be the first in a series of ETFs Grail plans to offer with RiverPark, which is based in New York City.

In January, Grail filed to launch GVT. But it also included an international-focused ETF using the same sort of fundamental analysis and active management as the original. No word when that will appear, however. (See related story here.)

Vanguard has also filed to come out with ETFs that would mimic some of its actively managed mutual funds. Those are in fixed-income categories, including the Vanguard Inflation-Protected Securities Fund (VIPSX).

Last month, Barclays Global Investors filed to launch its own set of actively managed ETFs. (See related story here.)

PowerShares was the first to bring active management to equity ETFs. But its family of funds relies largely on quantitative methodologies. Grail’s GVT opened the ETF universe to more traditional actively management, using bottom-up fundamental analysis that has been the domain of mutual funds in the past.

“Even though these are primarily managed by a single adviser, these are all continuing what we stated with GVT in bringing to the ETF market classic actively managed portfolios,” said Thomas. “Active management is the next wave and logical extension of the ETF marketplace. It’s going to be as big as index funds have been to ETFs up to this point.”

The filing for Grail's new ETFs can be found here.

-- This report was submitted by's Murray Coleman.



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