An advisory firm has launched a new separately managed account product that is composed entirely of ETFs.
The product puts a new spin on ETF investing by applying active management to the SMA's ETF holdings-a strategy based on daily rebalancing rather than the quarterly or annual rebalancing typical of passively managed accounts.
"We've taken an active strategy and applied it to ETFs, and in doing so we are able to allow advisors to bring value to their clients," says Sander Gerber, chairman and chief executive of New York-based XTF Advisors, which has launched the product.
The SMA accounts require a minimum investment of $50,000-which is lower than the requirements of a typical SMA-and charges a third-party distribution fee of 50 basis points.
Explaining XTF's active management strategy, Gerber says the firm will rebalance the ETFs in its managed accounts based on market trends and events that change the risk/return profiles of account holdings.
He noted that while accounts are evaluated for any required changes on a daily basis, actual trades happen less often. A back test of the strategy using data starting from 1986 generated an annual alpha of about 1%, he says.
"It works," he says. "We believe a static asset allocation is a good starting point, but the world does change."