In the land of exchange-traded funds, the big three of BlackRock (BLK), Vanguard and State Street (STT) tend to dominate asset flows and fund launches.
So when an upstart issuer raises more than a billion dollars for its funds in a single week, advisors and investors should take notice.
That’s just what WBI Investments did when it launched its first foray into the ETF space with a series of tactical funds dubbed WBI Shares.
While WBI Investments isn’t a household name in the same way Vanguard is, investors looking to add a dash of smart beta to their portfolios might want to consider adding one of the group’s new ETFs. They offer an interesting take on the smart beta theme.
WBI’s New Tactical ETFs
With nearly $2.4 billion under management (as of December 2013), WBI isn’t exactly a small fry. The firm operates as an independent, privately owned investment management firm that specializes in high-net-worth individuals and institutional investors. Its offerings include separately managed accounts, mutual funds and now ETFs.
The series of 10 smart-beta funds, which covers a huge range of investing styles and market caps, uses computer-driven quantitative-based screening methods to focus on absolute returns. (That’s a fancy way of saying that the new ETFs will try to produce positive returns in any market — bull or bear.)
WBI does this by adjusting the portfolio allocations to being fully invested to maximize returns in bull markets and raising cash to protect capital in bear markets. The idea is that the computer senses that danger is afoot and sells some stock and holds cash or short-term bonds.
As part of the suite, WBI launched a pair of income-focused multi-asset ETFs. Both the WBI Tactical Income Shares (WBII) and WBI Tactical High Income Shares (WBIH) own a mix of international & domestic bonds as well as dividend stocks. The funds apply the same screening and computer driven bull/bear model to determine allocations.
And these ETFs are particularly interesting when you look at the initial asset flows.
WBI launched the ETFs with only $2.5 million in starter capital. However, according to data provided by ETF.com, “between $75 million and $144 million flowed into each of the 10 funds on their first two days of trading.”
That’s basically a billion dollars following into WBI’s new ETFs in a very short time.
The popularity can largely be attributed to a popular current trend in ETF creation called “bespoke” ETFs. Essentially, a client — in this case, WBI’s advisors and current account holders — wanted a specific fund. This client talks to an issuer, which creates a new fund designed specially for them. Other examples include the Barclays ETN+ FI Enhanced Global High Yield ETN (FIGY) — which is owned mostly by Fisher Investments clients — or the iShares MSCI USA Quality Factor ETF (QUAL) — which was started by Arizona State Retirement System money.
But don’t worry — there’s nothing wrong with owning these sorts of ETFs. In fact, they can do just great.
For WBI, the fact that most of its clients are advisors makes these funds instant hits with ETF allocation modeling set. Ergo, AUM and trading volumes should only continue to grow.
So Should YOU Buy WBI’s New ETFs?
With expense ratios in the 1%-plus range, WBI’s new ETFs are a bit on the pricey side. The idea is that the added expense will be covered as the model prevents massive losses and increases gains during the good times. That remains to be seen. WBI’s mutual funds don’t track the same sorts of individual market segments, but are broader in construction.
However, given the surge of instant interest in the new ETFs, the potential is certainly there.
For us regular retail investors, we should take a wait-and-see approach. Adding a fund like the WBI Large Cap Tactical Growth Shares (WBIE) to a portfolio could allow investors to protect some of their large-cap allocation when the market gets a bit hairy.
All in all, WBI might have a few real hits on their hands.
The initial fund funds certainly suggest that.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
