AdvisorShares Files For Two Actively-Managed Income ETFs

Shishir Nigam
updated | Author's Website

AdvisorShares filed a preliminary prospectus for two new actively-managed ETFs with SEC on Oct 14th. The two actively-managed ETFs will be called the SiM Dynamic Allocation Diversified Income ETF (DINC) and the SiM Dynamic Allocation Growth Income ETF (DGRO), both of which will be sub-advised by Seattle-based investment advisor, Strategic Income Management LLC.

With these two new funds in the works, AdvisorShares now has 5 different actively-managed ETFs that it is working on bring to market, including the Peritus High Yield ETF, Cambria Global Tactical ETF and the Active Bear ETF. Previously, AdvisorShares had also filed for another two Active ETFs that would have been managed by Emerald Rock Advisors, but the application for those two funds was subsequently withdrawn. AdvisorShares has been able to create a reputation for planning interesting and unconventional strategies that are not commonly accessible by retail investors such as short-only funds and long-short offerings. AdvisorShares launched the Mars Hill Global Relative Value (GRV: 24.92 0.00%) fund this past July, following a long-short investment strategy, and was quite successful in quickly picking up $40 million in assets and becoming the largest actively-managed equity ETF in the US.

With these two new funds, in partnership with Strategic Income Management, AdvisorShares fills out its line-up even more with something to attract the conservative income-seeking investors. The Diversified Income ETF (DINC) will plan to focus on generating returns from reinvestments and growth of income by investing at least 60% and up to 85% of assets in domestic and international fixed income funds. The fund also has a restriction of 40% as the maximum amount of equity exposure within underlying holdings. The portfolio manager for the fund, Randy Yoakum – CEO of Strategic Income Management, will utilize fundamental and quantitative factors to determine sell decisions.

The Growth Income ETF (DGRO) will focus on long-term capital appreciation instead and thus will invest at least 60% of assets in domestic and international equity funds, basing investments on the manager’s outlook for the economy, financial markets and relative market valuations. The portfolio manager on this fund is also Randy Yoakum. Opposite to DINC, DGRO places a 40% maximum on the fixed-income exposure through underlying holdings.

Interestingly, both funds will utilize a “fund-of-funds” approach by achieving their investment objectives through investments in underlying ETFs that provide the portfolio managers with relevant exposures. That is one method many managers behind actively-managed ETFs have utilized to overcome the challenges posed by the daily disclosure requirement with Active ETFs. Managers investing in individual securities open themselves up to front-running because traders can step ahead of the portfolio manager and move the market in those securities. This is much harder to do when the underlying investments are in ETFs because of their size and also because of higher liquidity.

The expenses for each fund have not yet been announced. However, given that the fund will utilize a fund-of-funds approach, it would be reasonable to expect an extra charge on top of the management fee for “Acquired Fund Expenses”. The advisor to both funds, Strategic Income Management was only formed in Sep 2010 by Randy Yoakum and hence has no track record that investors can look to for some guidance on what they can expect.
Disclosure: No positions in above-mentioned names.

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