Today a newcomer to the ETF space, Kingsview Wealth Management, brought three funds to market bearing the Monarch brand name. All passively managed, the funds differ from each other significantly. The funds and their expense ratios are as follows:
- Monarch Ambassador Income ETF (MAMB), 1.47%
- Monarch Blue Chips Core ETF (MBCC), 1.25%
- Monarch ProCap ETF (MPRO), 1.36%
All of the funds list on Cboe Global Markets. Kingsview has previously made the strategies of the three ETFs available in separately managed accounts.
Blue Chip Fund
Perhaps the most interesting fund in the mix is MBCC, which tracks an index that takes the components of the S&P 500 and ranks them based on their fundamentals, selecting the top 24 securities for the portfolio. The fund equal weights its components and rebalances on a monthly basis, according to its prospectus.
“What we wanted to do was take some fundamental analysis into the S&P,” said Scott Martin, a Kingsview partner and wealth manager. He notes that the S&P 500 includes some “stinky” companies investors might not want to own. The prospectus says the fund’s index takes into account revenue, revenue growth, net income and net income growth among other attributes when selecting securities from its parent index.
Martin describes the resulting portfolio as a “better” and “more concentrated” version of the S&P 500. He adds that the fund’s index selects solely based on the companies’ fundamentals and does not have any sector requirements.
However, with an expense ratio of 125 basis points, MBCC is extremely expensive for the domestic large cap ETF space, even for a smart-beta fund, given that it is not a fund-of-funds, nor does it rely heavily on exposure to derivatives. Of the three large cap U.S. equity ETFs that are more expensive, two implement long/short strategies, while the third is an actively managed ETF-of-ETFs.
That said, Martin expects the fund's expense ratio to decrease as it accumulates assets, and he believes the quality of the ETF's methodology justifies its higher price tag.
MAMB and MPRO are both ETFs-of-ETFs, with the former focusing primarily on global and U.S. fixed income ETFs, and the latter targeting a mix of equity and fixed income ETFs. MAMB generally selects a portfolio of roughly 12 ETFs and weights them based on whether the economy is experiencing an expansion, contraction, peak or trough.
“There are a lot of different ways to look at the bond picture, especially going forward, in our opinion, that will allow somebody to have a much smoother income stream for retirement versus holding on for dear life in what could be a bear market for bonds in the next couple years,” said Martin, noting that bonds have been in a decades-long bull market. He further points out that MAMB is fairly unconstrained in the types of bonds it can hold.
“We’re going to have things, I believe, in the portfolio that will be less volatile and maybe pay a little more than the 10-year Treasury note,” Martin added.
‘Alternative Sleeve Of Investments’
Meanwhile, MPRO generally holds six to nine ETFs, with its index methodology selecting its holdings based on the economic cycle and the security’s relative strength, taking into account credit quality for fixed income and typical cyclical performance for equities.
It’s a product that is designed for investors who are just entering retirement or are about to do so, a time when many investors have a 50/50 allocation between stocks and bonds, Martin says.
“The goal is to build a better balanced portfolio,” Martin added, noting that there are times when stocks and bonds don’t behave as investors expect. “The asset allocation, in our opinion, needs to be tweaked a bit.”
According to Martin, the index does that by incorporating information around the economic cycle such as GDP and job growth. Those tweaks can translate into a 75/25 split between stocks and bonds or vice versa, and can even include an allocation to commodities, he says.
Both MAMB and MPRO have allowances in their index methodologies that accommodate a weighting ranging from 10% to 12.5%, respectively, in commodity or currency ETFs, which the prospectus terms an “alternative sleeve of instruments.”
Contact Heather Bell at [email protected]