Work Hard, Play Hard
The fund’s holdings aren’t confined to avoiding losses. It’s taking plenty of equity risk—active bets away from the market portfolio. These include:
As mentioned above, WBIG currently only has 20 names in it. Our benchmark has over 1,100. Takeaway: Moves in a handful of stocks will drive performance, for good or for ill.
With just 20 names, it’s hard to maintain a marketlike sector balance, which is not a fund objective anyway. Still, WBIG has 3x the market’s consumer cyclical exposure while entirely ignoring tech and health care.
Note too that cyclicals—heavily favored by the fund—are hardly a defensive play. Still, the fund’s current biases now aren’t the point, which is that WBIG can—and likely will—gain or lose relative to the market based on sector trends.
This risk comes in two flavors; the first is definitional. The fund has broad latitude to hold stocks outside the U.S., including emerging market securities. Yet the current alignment is all U.S. This variance, along with the bond exposure, makes it harder to park in a portfolio with traditional boundaries: Treat it as a global fund, and you’ll have huge gaps in international exposure. Treat it as a U.S. fund, and you’ll have too much ex-U.S. exposure if the managers rotate beyond our shores.
The second flavor of overlap risk is with firm size, and frankly, it’s just sloppy in my view. Seven of the 20 stocks in WBIG—a large-cap fund—also show up in their small- and midcap offering, the WBI SMID Tactical Yield Shares ETF (WBIC). Investors who like the WBI Shares premise—and clearly many do, given its $1 billion in assets—get an extra helping of these stocks in an already concentrated portfolio.
WBIG and its sister fund’s hybrid mix of safety and risk differs greatly from the tightly defined, dirt-cheap market exposure provided by leading cap-weighted index ETFs. While owning uber-efficient “dumb-beta” funds was hugely rewarding in 2013, marketlike performance devastated many nest eggs in 2008, which may explain the funds’ appeal. I look forward to watching how these funds perform going forward.
At the time this article was written, the author held no positions in the security mentioned. Contact Paul Britt at [email protected] or follow him on Twitter @PaulBritt_ETF.