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."