ETF Watch: RiverFront Debuts Funds

ETF strategist firm rolls out two actively managed ETFs.

ETF.com
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Reviewed by: etf.com Staff
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Edited by: etf.com Staff

RiverFront Investment Group, which includes ETF strategist operations, has rolled out two actively managed ETFs today on the NYSE Arca. The RiverFront Dynamic US Flex-Cap ETF (RFFC) and the RiverFront Dynamic US Dividend Advantage ETF (RFDA) both come with expense ratios of 0.52%; the two funds have different objectives, but target stocks at least partially based on their exposure to the value, quality and momentum factors.

RFFC can invest in small-, mid- and large-cap U.S. stocks as well as in other ETFs. Meanwhile, RFDA essentially just has a more refined focus: It too can invest in any size segment, but it focuses on U.S. equities with the potential for dividend growth

The two new funds were launched via ALPS’ exemptive relief.

AdvisorShares Replaces TrimTabs On Fund

In a move that has puzzled many, AdvisorShares recently announced that it will be switching managers on the actively managed AdvisorShares TrimTabs Float Shrink ETF (TTFS | C-80) from TrimTabs Asset Management to Wilshire Funds Management, a business unit of Wilshire Associates, effective July 1. The fund will also change its name to the AdvisorShares Wilshire Buyback ETF.

The firm gave no specific reasons, but said in a press release that “We thoroughly evaluate how we can best-serve both shareholders and prospective shareholders of our actively managed ETFs, and we believe that Wilshire’s exemplary portfolio management capabilities will continue to steer TTFS as a top-performing strategy, while executing the same investment objective and lowering overall costs, including reducing the fund’s management fee.”

TrimTabs Questions Move

In a responding press release, TrimTabs said it “questions the appropriateness of the decision by AdvisorShares to replace the manager and thereby change the ETF’s strategy.”

The press release also quoted the firm’s founder and CEO Charles Biderman as saying, “Our shareholders have expressed disappointment that they would now be forced to accept a different investment strategy than what they originally purchased.” 

The fund—which selects stocks based on trends in outstanding shares, firm leverage and free cash flow—is among AdvisorShares’ five most successful ETFs, with $177 million in assets and a track record that earned it a five-star rating from Morningstar. It has consistently outperformed the S&P 500 since its launch. The new version will still use the Russell 3000 Index as its selection universe. It will use a quantitative approach to select companies with strong fundamentals and “controlled debt” levels that are also seeing a reduction in their shares outstanding.

Cost May Be The Issue

In other words, under Wilishire’s management, TTFS will still follow a very similar strategy. But why switch managers on a successful fund? Reading between the lines, costs may be the issue.

The prospectus statement noted that the fund’s price cap will be lowered by 0.09% from 0.99% (its current expense ratio) to 0.90%. It also said that the subadvisory fee paid to Wilshire would be 0.55% of the fund’s daily net assets. That’s 0.9% cheaper than the 0.64% that was listed as the subadvisory fee paid to TrimTabs in an SEC document from October of last year.

It may simply have come down to Wilshire having the economies of scale to execute a similar strategy at a lower cost than a smaller firm like TrimTabs.

However, there is another question in play here when it comes to actively managed funds: What are shareholders to do when their actively managed fund switches managers? What does such a move mean for continuity?

For investors who are devoted fans of TrimTabs’ management skills, the firm has said in its press release that it would continue to make TTFS’s original strategy available in-house via separately managed accounts.

Contact Heather Bell at [email protected].

 

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