Time For Active ETF Managers To Shine

September 20, 2013

SSgA’s Active SRLN

A distant fourth in terms of assets, but one that has been climbing the asset ladder at an impressive rate, is the SPDR Blackstone/GSO Senior Loan ETF (SRLN), which has gathered more than $526 million in less than six months.

The fund, which came to market in April, offers exposure to noninvestment-grade, floating-rate senior secured debt of domestic as well as international companies that resets in three months or less. It competes in what’s been a hot pocket of the market anchored by two passive strategies—Highland’s (SNLN | C) and PowerShares’ (BKLN | C).

By design, SSgA’s SRLN sets out to outperform the indexes tracked by SNLN and BKLN by holding many of the same loans comprising the benchmarks of its rivals, but by buying these loans before they’re listed in the indexes and selling them before they’re dropped, according to ETF analytics data. What’s more, SRLN also looks at relative valuation of index constituents, and its strategy is not constrained to U.S.-only debt.

While its rise in the asset ranks has been notable, its performance has been a bit weak. Year-to-date, the fund has tallied losses of 0.2 percent, even if in the past month, it has managed to climb nearly 0.1 percent. By comparison, its massive passive competitor, the $5.6 billion BKLN, has slipped 0.7 percent year-to-date, and rallied 0.45 percent in the past month, while the $108 million SNLN is down 0.9 percent so far in 2013.

In the past year, only one in every 10 actively managed ETFs has tacked on gains of more than 20 percent, according to data compiled by IndexUniverse.

Funds like the Columbia Select Large Cap Value (GVT | C-61) and the Columbia Select Large Cap Growth (RWG | C-54) are leading the one-year performance charts with gains of more than 29 percent each in the past 12 months, and have been stellar performers so far in 2013 as well. By comparison, the SPDR S&P 500 (SPY | A-99) has rallied 20 percent in the same period.

As the names suggest, both GVT and RWG focus on U.S. large-cap companies, but GVT hones in on undervalued securities with good earnings growth potential, while RWG invests in stocks deemed to have above-average growth expectations. Despite the solid returns in recent months, neither fund has surpassed $10 million in assets. They were both launched in 2009.

The AdvisorShares TrimTabs Float Shrink ETF (TTFS | C-72) is another equities fund that stands out in terms of performance, with gains of some 24 percent in the past year, but more impressively, of 32 percent so far in 2013—making it one of the best-performing active managed ETF year-to-date.

TTFS is an equal-weighted strategy that sets out to outperform the broad U.S. stock market. The fund picks stocks based on three trends over the past 120 days: decreasing outstanding shares; increasing free cash flow; and shrinking leverage, according to IndexUniverse ETF Analytics.

By design, the first trend effectively makes TTFS a buyback fund, and one that, due to its equal-weighting and other metrics, shows a bias away from large-cap stocks, and minimizes single-stock exposure risk.

Still, TTFS has gathered less than $70 million in assets in two years.

 

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