ETF Watch: New Fund-Of-Funds Launches

June 27, 2017

Today ClearBrook Global Advisors subsidiary ClearShares, in partnership with ETF Series Solutions, rolled out its first ETF, a fund that invests in other registered investment companies, specifically ETFs. The ClearShares OCIO ETF (OCIO) is a play on the “outsourced CIO” concept, and is managed with the intention of outperforming a traditional portfolio that allocates 60% to equities and 40% to fixed income.

OCIO comes with an expense ratio of 0.67% and lists on the NYSE Arca exchange.

A press release from ClearShares notes that the outsourced CIO solution is popular with institutional investors because of the access it offers to investment management talent and asset class exposure. OCIO is designed to combine the “cost-effectiveness, liquidity and transparency of the ETF structure with the experienced professional management, research and analytics of the [outsourced CIO] model,” the release said.

Few Constraints

There is a definite “go anywhere” element to the fund’s methodology, with both top-down and bottom-up analyses figuring into the fund advisor’s investment decisions. OCIO can invest in other actively managed or index-based ETFs and can cover domestic or non-U.S. equity and fixed-income securities.

The prospectus also notes that it can seek exposure to alternative-type investments such as volatility indexes and managed futures via ETFs that do not qualify as traditional regulated investment companies. However, diversification and liquidity are listed as considerations for any investment.

The expectation is that OCIO will invest 40-70% in vehicles providing exposure to equity securities and 20% to 50% in ones providing exposure to debt obligations, the prospectus said. The equity exposures can target specific sectors or geographies and can include master limited partnerships and REITs.

Wide Array of Assets

Similarly, the debt obligations can cover a wide range of asset types, from corporate debt to junk bonds to asset-backed securities. There are no restrictions on currency denomination, maturity or credit quality.

In addition to implementing top-down macroeconomic and bottom-up fundamental analyses, the fund’s manager considers an investment vehicle’s market exposure, liquidity, cost and level of tracking error, the prospectus said.

OCIO will also avoid vehicles that rely on a high degree of leverage or on derivative, inverse exposure, derivatives or illiquid underlying securities. The prospectus notes that no individual vehicle is expected to represent more than 5% of the portfolio.

“We believe the OCIO ETF has the potential to be a total or core portfolio solution for institutional investors, RIAs [registered investment advisors] and individuals, without the resources to achieve 

 

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