ETFs that employ non-traditional strategies are capturing investors' imaginations.
By straying from tradition, the rules-based quant strategy ETF promises pumped up returns by hedging a portfolio or taking a directional bet on a sector, niche or market, explains Scott Martindale for Trading Markets.
This next generation of indexing uses a wide range of factors, including fundamental, technical and sentiment-oriented, to get a subset of top-ranked stocks within the index. This is accomplished through a multi-factor, quantitative indexing approach, which is transparent, back-testable and repeatable.
Some of the quant-based ETFs are:
- PowerShares Dynamic Large-Cap Value (PWV): down 8.4% year-to-date
- PowerShares Dynamic Industrials Report (PRN): down 2.6% year-to-date
- Claymore/Zacks Sector Rotation Portfolio (XRO): down 9.1% year-to-date
- Claymore/Sabrient Insider Portfolio (NFO): down 7.2% year-to-date
If you're comfortable with the idea of these ETFs, want to break with a little tradition and these funds are above their trend lines, it will be nice to have these funds as an option.
With Advent of Active ETFs, Will We See More CEF Conversions?
Now that actively managed ETFs are a reality, closed-end funds [CEFs] could begin seeing evolution in greater numbers.
Since the approval of the actively managed ETF, the CEFs that are trading below their net asset value [NAV] are leading managers to explore the possibility of opening them up into ETFs, reports Jesse Emspak for Investor's Business Daily.
CEFs only issue a limited number of shares and new shares aren't issued as investor demand grows, unlike ETFs. Prices aren't determined by the NAV, but instead by investor demand. The fund represents an actively managed portfolio of securities, and they typically concentrate on a specific industry, sector or region.
Claymore/Raymond James SB-1 Equity Fund (RYJ) is one CEF exploring a conversion. The board of directors has approved it, and it has to be run by the shareholders.
RYJ actually had a provision for making it an open-ended fund: if it trades at a discount of 10% or more over 18 months, or at 10% or more for 75 days in a row, it will convert. It never met the criteria, though.
ETFs have more than twice the assets as CEFs do, so perhaps this is something we may see more of in the future.
