AdvisorShares recently announced the impending closure of the AdvisorShares Rockledge SectorSAM ETF (SSAM). The ETF's last day of trading will be this Friday (June 14, 2013) with liquidation and final distribution occurring around June 21. "After consulting with the Rockledge team, we determined that it was in the best interest of shareholders to close SSAM due to its performance and associated costs," said Noah Hamman, CEO of AdvisorShares.
SSAM began trading Jan. 12, 2012, as an actively managed fund-of-funds ETF hoping to "generate stable and consistent annual returns under all market conditions" using a market neutral approach. The portfolio manager, Rockledge Advisors, pursued its Sector Scoring and Allocation Methodology ("SectorSAM") of buying sector ETFs it forecast to outperform the S&P 500, while selling short an equal dollar amount of sector ETFs it believed would underperform. The fund used the nine Sector SPDR ETFs from State Street.
Since inception, the SSAM ETF produced an annualized return of -4.2% vs. +16.2% for the S&P 500. As of June 9, its webpage showed a gross expense ratio of 11.04%. However, the Advisor had agreed to cap expenses at 1.50% excluding short-selling expenses and acquired fund fees. Therefore, the resulting net expense ratio of 3.11% required the Advisor to waive or reimburse 7.93% of expenses.
A 7.93% expense reimbursement equates to $93,974 per year on assets of $1,185,049. AdvisorShares was very forthcoming when it said that one of the reasons for closing SSAM was the "associated costs." The simple fact is ETFs need assets to be profitable. In the case of SSAM, even an extremely high net expense ratio of 3.11% resulted in the Advisor having to pay about $7,800 a month to keep it open. ETFs with more typical expense ratios of about 0.50% have an even larger economic hurdle to overcome. Eventually, the profit drain will force many other products on ETF Deathwatch to close. I encourage any remaining shareholders in SSAM to sell your shares prior to the delisting using a limit order.
Disclosure: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.