Two Contrasting Active ETF Stories

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 |  Includes: AGLS, MINT
by: Shishir Nigam

In the month of July, actively-managed ETFs in the US saw their total asset base shrink by nearly $300 million from $2.1 billion to about $1.8 billion. While there several big movers in the past month, including some of WisdomTree’s currency ETFs, there were two stories in particular that were interesting – those of PIMCO’s Enhanced Short Maturity Fund (NYSEARCA:MINT) and AdvisorShares’ Mars Hill Global Relative Value ETF (GRV).

MINT was launched in November 2009 and was the first actively-managed money-market ETF that strived to achieve returns on cash holdings better than the measly rates available in basic US treasuries. It served as an alternative to money-market funds for investors and portfolio managers looking to invest excess cash in portfolios. Given PIMCO’s well known fixed-income expertise and the ease of access provided through the active ETF structure, MINT proved to quite a success. The fund gathered close to $600 million in assets in the month of May alone and became the largest actively-managed ETF in the US. May was an especially volatile month for the equity markets as the S&P500 went from 1200 to 1070 and that was reflected in the scramble to move allocations to cash and money-market instruments like MINT. At its peak, MINT’s market cap exceeded $800 million.

However, since then, as the markets bottomed in June started recovering in July, MINT started seeing massive outflows, presumably because investors moved allocations back into risky assets. Assets dropped to $650 million at the end of June and really fell in July, plummeting to about $330 million, easily making it the biggest loser in the Active ETF space. As we highlighted in June, MINT’s fortunes are likely to continue being dependent and inversely related to the fortunes of the general market. By virtue of its asset class, MINT’s asset base will be volatile, but it’s important to note that assets have not fallen back to the sub-$200 million level that MINT was at prior to its steep growth in May. And most significantly, MINT has been quite successful at its main objective, to provide total income and return than money-market funds. The chart below shows MINT’s healthy outperformance when compared to the SPDR Barclays Capital 1-3 Month T-Bill ETF (NYSEARCA:BIL), especially so in recent months. (Click to enlarge)

In contrast to the MINT’s story, another brand new actively-managed ETF, GRV saw nearly instant success in July. GRV was AdvisorShares’ second product launch that hit the market on July 9th, with the Dent Tactical ETF (NASDAQ:DENT) being the only previous offering from AdvisorShares.

GRV hit the road running, gathering $38 million in assets in less than 3 weeks. While in the wider universe of ETF launches, that may not mean much, within the Active ETF space, that was enough to make it the largest equity actively-managed ETF in the US. While that may say more about the lack of success of other equity active ETFs than about GRV itself, it does indicate that investors like what GRV has to offer. The fund is unique in that it is the first actively-managed ETF to offer a long/short investment strategy that is usually accessible only through hedge funds. The portfolio managers will generally pursue a market neutral strategy but can opt to utilize derivatives to obtain a directional exposure to the market.

Initial reactions to GRV’s launch were mixed with some commentators questioning the complexity of the product and its utility for investors over long-only strategies. However, investors do seem to be voting with their money as the strategy clearly does appeal to some investors. The coming months will show whether the interest in GRV and assets continue flowing in. And of course, there’s the important matter of actually being able to provide the absolute returns that the sub-advisors claim to strive for.

Disclosure: No positions in above-mentioned names.

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