AdvisorShares has come out with a new actively managed stock exchange traded fund with a dynamic fee structure that aligns the manager’s incentive with shareholders’ interests.
On Wednesday, AdvisorShares launched the AdvisorShares Focused Equity ETF (NYSEArca: CWS).
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CWS is managed by Eddy Elfenbein. Elfenbein is the Owner, Publisher and Editor of the Crossing Wall Street Investment Newsletter, an investment analysis and research blog on the global stock market expressing opinions on individual securities and publishing the crossing Wall Street buy list since 2006.
Unlike other ETFs that have a static management fee, CWS will have a dynamic expense ratio, depending on the performance of the fund manager.
The new active ETF currently has a 0.75% expense ratio, but the fee can range from 0.65% to 0.85%, according to the prospectus. Specifically, the base fee is adjusted at a rate of 0.02% for every 0.25% to 0.50% of outperformance or underperformance, compared to the performance of the benchmark S&P 500 Index, but only up to 2.00% of the performance benchmark.
This dynamic fee structure may be a way to explicitly outline a plan to lower fees for growing scale. ETFs that do well or outperform typically attract heavy investment interest. Consequently, as an ETF grows in assets under management, a fund provider would have a greater incentive to reduce fees.
Looking at the fund’s strategy, CWS will try to generate long-term capital appreciation by investing in U.S.-listed equities that the portfolio manager believes have favorable fundamental attributes. Elfenbein will focus on firms that are fundamentally sound and have shown consistency in their financial results and high earnings quality. Additionally, the ETF will include companies with a strong history of sales and earnings growth, along with those that have steadily increased earnings and dividends for several years. The advisor may also include out-of-favor stocks that may show cheap valuations and less-known companies for their growth potential.
“We strive to deliver attractive alpha-seeking solutions through the best investment technology available, which we believe fully-transparent ETFs represent,” Noah Hamman, chief executive officer of AdvisorShares, said in a press release. “The reputation of Eddy Elfenbein and Crossing Wall Street’s Buy List has long been reinforced by his strong investor following and a well-established history. We’re pleased to now deliver that expertise through an actively managed ETF and provide another industry first, where the portfolio manager is compensated relative to CWS’ performance against its S&P 500 benchmark.”
Current top holdings include Heico Corp 6.3%, Stryker Corp 6.2%, Aflac 6.1%, CR Bard 6.1% and Ross Stores 5.9%.
For more information on new fund products, visit our new ETFs category.
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