Actively managed ETFs so far in 2020 represent roughly 50% of all new ETF launches—an unprecedented big slice of the pie. They have also attracted about 10% of all net asset inflows this year—a high percentage for a segment that today represents less than 3% of all U.S.-listed ETF assets.
Active management in the predominately passive world of ETFs is clearly making a showing this year.
But whether these active ETFs are rules-based with some form of actively managed overlay or entirely discretionary strategies, all of these funds have one thing in common: an active portfolio manager behind them.
When you buy into an active ETF, you are buying into the expertise, methodology and investment philosophy of its manager. You better believe in what that person is bringing to the table relative to a benchmark. So, who are these managers? We talked to three new-to-ETFs market managers to find out more.
Andrew Mies, Chief Investment Officer, 6 Meridian
ETF.com: What's your investment philosophy?
Mies: What drives everything we do is our focus on the risk-adjusted return we get as investors. It all comes down to what amount of risk we take relative to what we get in return for that risk.
There are a lot of strategies out there offering highly attractive returns, but once you adjust to the amount of risk it took, it’s not always worth it. That core focus on risk-adjusted return drives all of our portfolio decisions.
ETF.com: What's unique about your value proposition? What sets you apart relative to your competitors?
Mies: There are a couple of things that differentiate us. First, the genesis of our firm is a high net worth advisory firm. We are designing with a specific client in mind. We aren’t trying to have a broad-based offering. That’s different from what many other ETF providers offer, because we’re extremely tax sensitive and tax aware.
Our tax sensitivity exceeds most other firms out there. From the rebalancing frequency to heartbeat trades to the elimination of low basis stocks to portfolio choices, we measure ourselves on the after-tax return generated. It’s a different mindset.
There’s always that final conversation about the tax consequences of every decision we make in the portfolio relative to the risk of holding or selling a position. The launch of our ETFs was done entirely to increase the after-tax net worth of our clients—the deferral of taxes is a dramatic benefit for our clients.
Another unique aspect of our business is that, when we launched, we had most of these strategies already with 10 years of history in separately managed accounts, so within 30 days of the launch of our ETFs, we already had $400 million in assets under management.
In doing so, other investors can benefit from the structure that’s already in place and the costs that are already covered.
ETF.com: How do you start your day? What’s a must-do for you as an active manager?
Mies: The strategies we manage in ETF format are driven by a lot of empirical research and data analysis, by backtesting, and by constantly reading new research, trying to find other signals and attributes that we can look into and incorporate into our quantitatively built portfolios.
Our strategies are all quant, focused on high quality, cheaply valued, strong-price-momentum stocks. That’s the entirety of our research effort.
Quick description of the ETFs:
6 Meridian Hedged Equity-Index Option Strategy ETF (SIXH) – $193 million in AUM, 0.81% expense ratio. The biggest of 6 Meridian’s ETFs, SIXH is a U.S. large cap equity ETF holding 40-60 high quality, high profit stocks that also captures volatility premium by selling call options on SPY. The strategy is designed to deliver income, lower volatility and outperformance in down markets in a tax-efficient way.
6 Meridian Mega Cap Equity ETF (SIXA) – $106 million in AUM, 0.82% expense ratio. SIXA looks at the top 10% of the Russell 3000 for the highest quality, profitable names, and ranks stocks based on several factors such as momentum, yield, quality, etc.
6 Meridian Low Beta Equity Strategy ETF (SIXL) – $85 million in AUM, 0.84% expense ratio. SIXL is an all-cap portfolio of some 240 S&P-universe low beta stocks. Multifactor screens inform selection, and ranking takes into account relative market risk/volatility, beta.
6 Meridian Small Cap Equity ETF (SIXS) – $23 million in AUM, 0.97% expense ratio. SIXS is a small cap portfolio picking names from the S&P 600 that are low beta and are also value stocks. Multifactor screens inform selection, and ranking takes into account value metrics and beta.
