EventShares Debuts 3 Funds

Active Weighting Funds today is rolling out a trio of actively managed ETFs under the EventShares brand name that select their holdings based on policy. The funds list on the Bats exchange, which is owned by ETF.com’s parent company CBOE.

The new ETFs, their tickers and expense ratios are as follows:

• Republican Policies Fund (GOP), 0.75%
• Democratic Policies Fund (DEMs), 0.75%
• U.S. Tax Reform Fund (TAXR), 0.85%

All three funds can hold long or short positions in U.S. equities with at least $250 million in market capitalization. Each portfolio will range in size from 30 to 75 securities, which will be equally weighted in the portfolio, the prospectus says.

Ben Phillips, CIO of EventShares, describes the funds as “thoughtfully active” and notes that the two politically oriented funds are considered EventShares’ flagship products. Their emphasis is on policy rather than politics, he adds.

An Active Strategy

Primarily, with regard to all three ETFs, the managers are looking for companies that are likely to experience sustained earnings growth due to actions in support of the policies in question, as well as those companies likely to see disruptions to their business models due to the same actions. Each fund will hold long positions in companies expected to see benefits from the targeted policies and short positions in companies that are instead likely to be hurt by the policies.

“They’re seeking to really provide capital appreciation by striving to unlock value from policy-driven events and themes,” said Phillips. The funds’ active management, he asserts, means they can react immediately to policy changes, which would not be possible if the funds tracked rules-based indexes.

The two party-focused funds consider legislative, executive and regulatory actions that affect how a company operates within a sector; how individuals interact with the company, government or each other; and how the company and individuals are regulated or supervised by government agencies, the prospectus notes. The funds take long positions in companies that are boosted by the policies supported by the party in question and short those that will be negatively affected.

GOP seeks to capture the performance of companies that will benefit from U.S. government actions that are representative of the policies of the Republican Party as identified by the fund’s advisor. Although the focus is more at the federal level, the fund’s managers can take into account state-level actions.

Republican-friendly policies include those that reduce regulatory requirements for financial and energy companies, increase government spending in the aerospace and defense industries, focus on the strength and enforcement of immigration laws and decrease corporate taxes.

DEMS will do essentially the same thing with regard to policies supported by the Democratic Party. This includes actions, according to the prospectus, that make it easier for immigrants to gain visas or citizenship; improve access to higher education programs; are likely to produce increases in the wages of U.S. workers, including the minimum wage; promote clean or renewable energy and environmental protections; support a progressive tax system; and promote single-payer health care or wider health insurance access.

Focus On Tax Reform

Meanwhile, TAXR takes long positions in companies likely to benefit from actions that support the identified tax reform themes, and shorts those expected to decline as a result of those same actions.

The themes the fund identifies include corporate and individual tax rates; how U.S. firms’ international income is taxed and repatriated domestically; the level of import and export taxation and tariffs; and the credits and deductions allowed by the Internal Revenue code.

“We look at those we think are going to impact the capital markets the most meaningfully over the next one to two years,” Phillips said. “It makes sense for an investor or advisor to position their portfolio for important policy developments.”

Although some investors may select DEMS or GOP to reflect their political beliefs, Phillips considers the two funds to be core holdings, while TAXR is more of a tactical play.

Early September saw the debut of another politically themed ETF, the Point Bridge GOP Stock Tracker ETF (MAGA), which currently has $30 million in assets under management. However, MAGA is an index-based fund that uses the S&P 500 as its parent index and selects companies based on the amount of money the firms, their political action committees and their employees donate to the Republican Party. It comes with an expense ratio of 0.72%.

Bernstein Funds Launch

Exchange-Traded Concepts is rolling out two funds subadvised by Vident Investment Advisory that track indexes developed by research firm Sanford C. Bernstein & Co. The Bernstein U.S. Research Fund (BERN) and Bernstein Global Research Fund (BRGL) both target large-cap companies rated as “Outperform” by the index provider’s sell-side analysts.

Both funds list on the Bats exchange. BERN comes with an expense ratio of 0.50%, while BRGL charges 0.65%.

Approach

BERN selects its components from the entire universe of U.S. stocks covered by Bernstein. The “Outperform” designation in this case indicates the firm expects the company in question to outperform the S&P 500 by more than 15 percentage points over the next six to 12 months, according to the prospectus.

Companies are also ranked into quintiles based on Bernstein’s quantitative alpha model. The model uses fundamentals, industry rotation and market risk appetite to determine a company’s expected return over the coming 12 months. In addition to being rated as Outperform, a company must also meet liquidity requirements and fall into one of the top three quintiles. Selected components are equally weighted.

BRGL is very similar in its approach, but selects its components from non-U.S. developed markets, emerging markets and the U.S. In this case, an Outperform rating means that a company is expected to outperform the MSCI ACWI by 15 percentage points over the next six to 12 months.

Although BRGL is unique in its global focus, BERN has a very close competitor in the $191 million Guggenheim Raymond James SB-1 Equity ETF (RYJ), which targets companies rated “strong buy” (SB-1) by Raymond James.

Similar to Bernstein’s “outperform” rating, the SB-1 designation indicates the company is expected to outperform the S&P 500 by 15 percentage points over the next six to 12 months. However, RYJ is the more expensive fund, with an expense ratio of 0.75%.

Contact Heather Bell at [email protected]