Elkhorn Teams Up With Research Affiliates And Dorsey, Wright On Two New ETFs
Elkhorn Investments LLC has introduced two exchange-traded funds that are collaborations with two of the country’s leading investment research houses.
In one corner is the Elkhorn Fundamental Commodity Strategy ETF (RCOM), which is based on fundamental research from Research Affiliates, the Newport Beach, Calif.-based company founded by smart-beta pioneer Rob Arnott. This is the first commodity ETF based on Research Affiliates’ fundamental research.
In the other corner is the Elkhorn Commodity Rotation Strategy ETF (DWAC), which is the first commodity ETF based on Dorsey, Wright & Associates’ (DWA) proprietary Relative Strength methodology.
RCOM is an actively managed ETF that benchmarks to the Dow Jones RAFI Commodity Index. It attempts to track the index by investing in exchange-traded commodity futures contracts and other commodity-linked instruments. The fund will also invest in short-duration, high-quality and highly liquid bonds to collateralize its exposure.
Research Affiliates’ index uses price momentum and roll yield to attempt to outperform the broad market, as well as a dynamic weighting methodology to adapt to volatile commodity markets. RCOM will have 1099 tax reporting.
The DWAC fund is described as the first purely tactical commodity ETF on the market. DWAC’s commodity exposure is based on a model developed by DWA using its proprietary Relative Strength methodology. The model evaluates a universe of 21 commodities and provides equal-weighted exposure to the five commodities exhibiting the highest relative strength. The ETF also employs an intelligent roll strategy to mitigate the potential negative impact of contango, and invests in a short–duration portfolio of highly liquid, high-quality bonds.
As with the RCOM fund, investors in DWAC will receive a 1099 tax form versus the K-1 forms often associated with commodity ETFs.
ProShares Rolls Out Oil ETF With No K-1
The name of the ProShares K-1 Free Crude Oil Strategy ETF (OILK) says it all about one of its chief value propositions: namely, it’s billed as the only U.S. ETF that lets investors get crude oil exposure but skip the K-1 tax form.
OILK is registered under the Investment Company Act of 1940, unlike other crude oil ETFs that are commodities partnerships. Like other 1940 Act funds, OILK will provide shareholder tax reporting information on 1099 forms, not the K-1 form issued by partnerships.
OILK provides exposure to the West Texas Intermediate crude oil futures market in an actively managed ETF. The fund's strategy seeks to outperform certain index-based strategies by actively managing the rolling of crude oil futures contracts, which can potentially mitigate losses from contango (when new contracts are more expensive than expiring ones) and help the fund benefit from backwardation (when new contracts are less expensive than expiring ones).