Validea is a sub-advisor to two mutual funds in Canada offered through the National Bank of Canada, and its managed accounts are available to financial advisors through Validea itself and through both the Placemark UMA Marketplace Network and the Envestnet Advisor Suite. The investment minimum for its managed accounts is $250,000.
Reese says the impetus for creating the VALX fund came from both advisors and investors who have subscribed to Validea’s newsletter and research tools but couldn’t pony up the $250,000 minimum for one of its managed accounts. The ETF, he notes, appeals to investors looking for a more retail-level product.
The Nasdaq-listed VALX fund has 100 holdings, carries an expense ratio of 0.79 percent and rebalances monthly. “The ETF has the big advantage of being tax efficient to mitigate short-term capital gains taxes [from the fund’s monthly rebalancing],” Reese says.
Morningstar classifies the product in its mid-cap blend style box category. That’s an appropriate classification for now, Reese says, because the fund’s model has a bias toward small- and mid-sized stocks. But he notes that will probably change over time because Validea’s model––like other guru-based models at competing ETFs––aren’t limited to traditional categories because they float, or alter their biases as market conditions change.
“We feel the best comparison is the S&P 500 index because it’s the broadest benchmark,” he says.
Many of Validea’s managed account portfolios are benchmarked to the S&P 500, and on that basis their performance track records are mixed. According to Validea, the portfolio that’s the closest comparison to the VALX fund––the Select Blend portfolio of 60 small- and mid-cap securities based on investment guru models––has topped the benchmark since 2003, though some of that period incorporates back tested results.
13F Funds
Whether or not Validea has built the proverbial better mousetrap remains to be seen. What is known is that the two oldest funds in the guru ETF category have done quite well during their short lifetimes.
The AlphaClone Alternative Alpha Exchange-Traded Fund (ALFA) and the Global X Guru Index ETF (GURU) launched within a week apart in mid 2012. Both funds have generated significant investor interest––GURU has attracted $357 million in assets versus $107 million for ALFA, and both have annualized returns of about 25 percent. ALFA sports an expense ratio of 0.95 percent versus 0.75 percent for GURU.
Global X added to its guru franchise when it launched the Guru Small Cap Index ETF (GURX) last March. The fund, which also carries an expense ratio of 0.75 percent, hasn’t come close to matching the success of its big brother in terms of investor interest (AUM of just $2 million) or performance (down about 7 percent since inception).
The other ETF in this group, the Direxion iBillionaire Index ETF (IBLN), launched last August and already has nearly $40 million in assets. It’s up more than 5 percent since inception, and charges 0.65 percent.