Global X Management Co. and J.P. Morgan Chase & Co. this
week will together launch a pair of exchange-traded funds that seek
to compete in the fast-growing market for managed ETF
portfolios.
Developers of the Global X/JPMorgan U.S. Sector Rotator Index
ETF and the Global X/JPMorgan Efficiente Index ETF, due to list on
the NYSE Arca exchange on Thursday, have their sights set on the
roughly $100 billion industry currently dominated by F-Squared
Investments Inc., Charles Schwab Corp.'s Windhaven Investment
Management and Good Harbor Financial LLC.
These professional money managers assemble portfolios from
exchange-traded funds, which are baskets of stocks and trade
throughout the day. They use the ETFs as the building blocks for a
wide range of investment strategies, the most popular of which aim
to dodge market downdrafts or outperform the broader stock market
using mathematical buy and sell signals.
Primarily the domain of financial advisers, these ETF managed
portfolios are mostly accessible through separately managed
accounts and mutual funds. Some of the biggest players in the
tactical ETF managed portfolio industry have hit turbulence over
the past year due to regulatory probes and poor performance.
"You've seen billions go into these tactical strategies," said
Bruno del Ama, chief executive of Global X. "We believe there's gap
in providing an ETF wrapper in the space, and in having a top-tier
firm to provide the backbones for these strategies."
New York-based Global X is a top 20 U.S. ETF provider with about
$3.8 billion in assets under management, according to ETF.com.
The Global X/JPMorgan US Sector Rotator Index ETF itself will
hold other sector stock ETFs. Monthly buy and sell signals are
determined by an index devised by J.P. Morgan.
One selling point, Mr. del Ama said, is lower fees. Fees for the
Global X/JPMorgan US Sector Rotator Index ETF are 0.86%, higher
than those for the passive sector-tracking ETFs, but far lower than
popular mutual funds that offer comparable strategies.
For instance, the $7.6 billion Virtus Premium AlphaSector mutual
fund, which rotates between sector stocks and is co-managed by
F-Squared Investment's chief executive Howard Present, charges
1.62% in fees on top of a separate 5.75% sales charge, or load,
according to Morningstar.
Also due to launch Thursday is the Global X/JPMorgan Efficiente
Index ETF, which tracks a separate J.P. Morgan index that regularly
shifts ETF holdings based on market momentum and volatility
signals. It can allocate between holdings across assets including
global stocks, bonds, commodities and real estate.
The moves come as the largest provider of managed ETF
portfolios, F-Squared Investments Inc., which commanded $27.7
billion at the end of June, disclosed in late August that the
Securities and Exchange Commission is considering bringing a civil
case against the company over whether the firm overstated its track
record.
The Wall Street Journal reported that some brokerage firms have
begun taking steps to bar advisers from putting new money into
F-Squared's strategies, as well as mutual fund equivalents run by
Virtus Investment Partners Inc., pending the investigation.
At Good Harbor, another major tactical ETF manager, lagging
performance has plagued the firm's flagship strategy in 2014 after
it more than doubled in size to $10.4 billion last year. Good
Harbor's U.S. Tactical Core strategy was down 19.5% in 2014 at the
end of the third quarter, according to a Good Harbor client letter
dated Oct. 18 and viewed by The Wall Street Journal.
Others, including ETF managed portfolios run by Stadion Money
Management, Innealta Capital and Cougar Global Investments Ltd.,
saw their overall assets decline in the 12-months ended in June,
according to Morningstar.
Write to Chris Dieterich at chris.dieterich@wsj.com
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