TrimTabs Debuts Risk Managed ETF Strategies

TrimTabs Asset Management launched its first index-based ETFs today after teaming up with Donoghue Forlines, another investment firm. Long a bastion of quantitative asset management, the issuer rolled out the TrimTabs Donoghue Forlines Risk Managed Innovation ETF (DFNV) and the TrimTabs Donoghue Forlines Tactical High Yield ETF (DFHY), which are both subadvised by Donoghue Forlines.

DFNV and DFHY come with expense ratios of 0.69% and 0.95%, respectively. Both list on Cboe Global Markets, the parent company of ETF.com.

“There’s been a rich history at TrimTabs with regard to quant screening,” said TrimTabs CEO Bob Shea, who pointed out that quantitative, rules-based approaches mesh quite well with index strategies. He notes that his firm maintains more than 200 in-house indexes based on its free-cash-flow (FCF) strategy.

Both funds have a risk management aspect in that they allow their portfolios to shift into lower-risk investments based on daily buy/sell signals.

Innovation With A Cushion

DFNV offers access to stocks that invest heavily in R&D and might be a little riskier, while cushioning that risk by bringing in fixed income exposure when a signal deems it necessary. The fund essentially combines TrimTabs’ free-cash-flow strategy with an innovation score that is largely based on research and development metrics. Companies eligible for inclusion must meet minimum liquidity and size requirements as well as have 12 months of reporting on its free cash flow and positive R&D spending. The free cash flow score is based on quality of earnings, profits generated from R&D, the ratio of R&D spend to total assets, asset turnover, and financial leverage, according to the prospectus.

Companies must rank among the top quartile based on their FCF innovation score, with weights determined by a combination of FCF score and market capitalization. Starting with the largest weights, companies are selected based on their assigned weighting until the number of components reaches 120, or 90% of the cumulative security weight is reached, the document says.

From there, the fund can move half of its portfolio into a basket of short-term Treasury ETFs based on a buy/sell signal. When the “buy” signal is in effect, the fund will be fully invested in equity securities, but it will shift to a 50% allocation to defensive fixed income investments when the “sell” signal is triggered, the filing indicates.

A High-Yield Strategy

DFHY is TrimTabs’ first ETF to focus on fixed income, and the first to leave free cash flow metrics out of its methodology. It invests primarily in plain-vanilla, low-cost high-yield bond ETFs, with a risk management tactical overlay that will shift 80% of its allocation into intermediate-term Treasury ETFs based on a daily buy/sell signal.  

Shea says the fund can be used in an income capacity, and that the strategy is expected to allow investors to participate in the majority of  the upside of the high yield bond space, while avoiding the majority of the downside performance in that asset class.

The new funds join TrimTabs' lineup of two ETFs targeting companies’ free cash flow metrics, the TrimTabs US Free Cash Flow Quality ETF (TTAC) and the TrimTabs International Free Cash Flow Quality ETF (TTAI).

Contact Heather Bell at [email protected]