In May, Grail Advisors launched the market’s first true, actively managed equity ETF, the Grail American Beacon Large Cap Value ETF (GVT). Traded on the New York Stock Exchange, GVT represented the first fund designed to incorporate traditional investment management approach and a multi-manager format into an active ETF structure. Upon launching this multi manager active ETF, the firm announced plans to introduce the industry’s first actively-managed ETFs using a single-manager approach. Four funds—RP Growth ETF (RPX), RP Focused Large Cap Growth ETF (RWG), RP Technology ETF (RPQ), and RP Financials ETF (RFF), were announced. Some would come to call these ”mutual fund killers.” RiverPark Advisors, LLC, of New York are to serve as the primary sub-adviser for each of the funds. The time has arrived, and these four “mutual fund killing” ETFs are set to launch Thursday.
According to the WSJ, New York-based RiverPark Advisors, will be assisted by Wedgewood Partners, for the day-to-day stock selection. RiverPark’s involvement is notable because the firm’s principals are veterans of the traditional mutual-fund industry, being former executives and managers at Baron Funds.
“I’ve lived and breathed mutual funds for the last couple of decades,” said Morty Schaja, RiverPark’s chief executive. But the ETF “is a superior vehicle,” he said, because it is transparent, tax efficient and easy to trade. The new Grail funds will each charge annual expenses of 0.89% of assets.
RP GROWTH ETF (RPX)
INVESTMENT OBJECTIVE: Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
RP Growth ETF seeks long-term capital appreciation by investing at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in equity securities of companies that RP, the ETF’s sub-adviser, believes have above-average growth prospects. RP uses a fundamental research driven approach to identifying those industries and companies with the strongest growth prospects for revenue, earnings and/or cash flow over the medium and long term and seeks to buy stock in those companies at attractive valuations. The ETF may invest in companies of any market capitalization and in any industry. The ETF expects to invest primarily in the securities of US companies, and may also invest in US securities tied economically to foreign investments, such as American Depositary Receipts.
The ETF invests in industries that RP believes are the beneficiaries of long-term secular changes in the global economy and companies within those industries that are gaining market share and have, what RP believes to be, long-term sustainable competitive advantages and positions protected by strong barriers to entry. RP seeks companies with latent pricing power, expanding free cash flow and a high return on invested capital. RP also looks for companies with strong and experienced management teams with clear business objectives. RP believes it can gain an investment advantage not only through its primary research and by developing conviction in business models, but also because itinvests with a long-term time horizon.
RP FOCUSED LARGE CAP GROWTH ETF (RWG)
INVESTMENT OBJECTIVE: Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
RP Focused Large Cap Growth ETF seeks long-term capital appreciation by investing at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in equity securities of large capitalization companies that Wedgewood, the ETF’s sub-adviser, believes have above-average growth prospects. The ETF considers companies with market capitalizations in excess of $5 billion to be large capitalization companies. The ETF is non-diversified and expects to invest in a limited number of companies, generally holding securities of between 20 and 30 companies. The ETF expects to invest primarily in the securities of US companies, and may also invest in US securities tied economically to foreign investments, such as American Depositary Receipts.
Wedgewood seeks investments in market leaders with dominant products or services that are irreplaceable or lack substitutes in today’s economy. Wedgewood invests for the long term, and expects to hold securities, in many cases, for more than 5 years.
Wedgewood’s investment process involves rigorous qualitative and quantitative inputs as well as a strict valuation and risk discipline. Wedgewood’s quantitative process seeks to differentiate among the 500-600 largest companies to separate those which exhibit factors such as above-average returns on equity, returns on capital, cash flow returns on investment, earnings per share growth and revenue growth. The qualitative process then focuses on the sustainability of the company’s business model with particular emphasis on barriers to entry, competition and relative buyer/supplier leverage. Wedgewood next uses a valuation model to forecast future performance for sales, earnings and financial position to create absolute valuation projections for the
company’s intrinsic value seeking to invest in a focused (20-30 securities) portfolio of its highest conviction ideas. Positions are reduced or eliminated from the portfolio over time when long-term growth rates fall below Wedgewood’s expectations, a superior opportunity becomes available, the position becomes fully valued according to Wedgewood’s valuation discipline and/or appreciation results in an excessively large holding in the portfolio.
RP TECHNOLOGY ETF (RPQ)
INVESTMENT OBJECTIVE: Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
RP Technology ETF seeks long-term capital appreciation by investing at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in equity securities of companies that develop, produce or distribute technology-related products and services. The ETF will invest in companies both within and outside the technology sector (the technology sector is narrower that what RP, as the ETF’s sub-adviser, considers to be technology-related businesses) and the ETF will invest in companies whose value, in RP’s view, derive from embracing technological innovation. These companies are not limited to the technology industry, and may include companies in sectors such as industrial and business machines; communications; computer hardware and software; computer services and peripheral products; electronics; electronic media; internet; television and video equipment and services; satellite technology and equipment; and semiconductors.
RP uses a fundamental research driven approach to identify technology-oriented companies that are suitable for the portfolio, and seeks to buy stock in those companies at attractive valuations. The ETF will primarily invest in companies with mid- to large-market capitalizations, but may invest in companies of any market capitalization. The ETF considers companies with market capitalizations of between $2 billion and $150 billion to be mid- to large-capitalization companies. The ETF expects to invest primarily in the securities of US companies, and may also invest in US securities tied economically to foreign investments, such as American Depositary Receipts.
RP FINANCIALS ETF (RFF)
INVESTMENT OBJECTIVE: Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
RP Financials ETF seeks long-term capital appreciation by investing at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in equity securities of financial services companies. The ETF considers financial services companies to be those companies that derive a significant portion of their revenues from any aspect of the financial services industry, including, but not limited to, banking, lending, brokerage, exchanges, insurance, and money management, as well as real estate investment trusts (”REITs”).
RP, the ETF’s sub-adviser, uses a fundamental research driven approach to identify financial services companies that are suitable for the portfolio, and seeks to buy stock in those companies at attractive valuations. The ETF will primarily invest in companies with mid- to large-market capitalizations. The ETF considers companies with market capitalizations of between $2 billion and $150 billion to be mid- to large-capitalization companies. The ETF expects to invest primarily in the securities of US companies, and may also invest in US securities tied economically to foreign investments, such as American depositary Receipts.
We have included a video of a Marketwatch interview with Bill Thomas, CEO of Grail Advisors. This interview occured just after the launch of the Grail American Beacon Large Cap Value ETF, and he addresses the four funds set to launch. Click here to watch the video.
Disclosure: NO POSITIONS