Wednesday an established wealth management firm entered the exchange-traded fund market with a splash, launching a new breed of risk-managed ETFs.
WBI Investments launched 10 actively managed ETFs that claim bear market capital preservation and bull market return. These new fund offerings will include multiple market cap and tactical focuses along with select income strategies.
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The complete list of all the new WBI ETFs on the NYSE Arca exchange can be found here.
The secret sauce strategy behind the capital preservation aspect of these funds is to shift from being fully invested under optimal conditions to raising cash as risk increases. The goal is to provide consistent returns with less overall risk than a passive index.
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For example, the WBI Large Cap Tactical Select ETF (NYSE: WBIL) will invest in a diversified portfolio of large cap stocks with "attractive value characteristics and prospects for financial stability." The fund is designed to be a core holding that will actively reduce volatility during times of market stress by setting a trailing stop loss on every position in the portfolio.
WBIL has yet to list its underlying holdings in order to evaluate or compare against similar alternatives. However, its reasonable to assume that an ETF with this focus would be benchmarked against a broad large-cap index such as the SPDR S&P 500 ETF (NYSE:SPY).
Its also worth noting that the gross expense ratios for the entire suite of WBI ETFs are listed at 1.00 percent or higher. The fund company may ultimately offer a short-term fee waiver to lower the net expense ratio and attract assets, but that has yet to be determined.
Fees will be a key consideration for choosing these funds over comparable passive alternatives, especially when similar funds offer annual expenses at a fraction of the total cost.
The debate over whether passive indexes or active management is a better alternative has divided both individual investors and financial advisers. Often actively managed portfolios go through cycles of outperformance and underperformance in addition to charging higher fees. However, each participant will have to decide for themselves if this investment style is right for them.
Ultimately these new ETFs provide investors with fresh options to consider when building their portfolios to weather market volatility and other unknown events.
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