- Screenshot, Bloomberg
It’s just every kid’s dream: grow up, start blogging about your stock picks, and then one day – maybe, just maybe – you’ll have your own exchange-traded fund.
Like I said, it’s every kid’s dream, and Eddy Elfenbein, writer of popular financial blog Crossing Wall Street just made that dream come true.
For the past decade or so, Elfenbein has created an annual list of 20 stocks he likes. Every year 5 of those stocks are switched out, and throughout that year the portfolio is rebalanced. Through 2015, Elfenbein’s picks have beat the S&P 500 by as much as 164%.
“People would ask me, ‘isn’t there some way we can invest in this [his list of 20]?’ And I just got so many questions I thought hmm, there might be a workable product,” Elfenbein told Business Insider.
Those 20 stocks are now an ETF, a basket of securities that trade as one, and it launched just a few weeks ago. To buy a single share of all of his 20 stocks individually, Elfenbein figures it would cost about $2,000. The ETF, AdvisorShares Focused Equity ETF (CWS), costs investors about $25 a share.
In creating this Elfenbein has joined something of a revolution in the world of investing – one that has seen funds move from actively managed mutual funds to passive indexes.
Sort of (we’ll get to that in a second).
Here’s how all this happened. The work started in earnest at the end of last year when Elfenbein linked up with AdvisorShares. Elfenbein had the product, but they had the infrastructure to develop it.
“It’s hard to do but certainly not rocket science,” Noah Hamman, founder of AdvisorShares told Business Insider. “The challenge is just that it’s a heavily regulated environment.”
Elfenbein wasn’t registered with the SEC or anything, so AdvisorShares took them under their umbrella as a portfolio manager. They took him through the process of getting CWS listed, which is not that unlike an IPO. You have to file a prospectus with the SEC, and there’s 75-day quiet period once you file. During that time you can’t try to sell it or distribute market materials
Of course, you also have to file with the stock exchanges (CWS trades on the New York Stock Exchange), and you have to file marketing materials and fact sheets with FINRA.
You also have to build a compliance operation that adheres to the Investment Company Act of 1940, the Securities Act of 1933, and the Exchange Act of 1934.
This is why it’s so key that Elfenbein is working with AdvisorShares. He’s getting plugged into their existing infrastructure.
“If someone were to start it from scratch, incredibly hard and expensive,” said Hamman.
- Yahoo Finance
Hamman started AdvisorShares back in 2009 after stints at Fidelity. Since then they’ve grown assets to $1.2 billion, with 23 actively managed ETFs in the market.
That “actively” is what keeps AdvisorShares (and Elfenbein) partially in the world of old Wall Street – of mutual funds and all-knowing managers.
And then there’s this:
“We’re doing something that is completely new in the ETF space,” Elfenbein explained. “We have a fulcrum fee, it’s basically that the expense ratio changes depending if we beat the market. If we beat the market I get a bonus. conversely if I lose to the market the ratio drops so investors pay less. It’s like something from the hedge fund world we’re importing into the ETF world.”
On the flip side, an ETF is cost and tax efficient for investors.
“We’ve been a big fan of Eddy’s for a while we’ve just been thinking of ways to make it work… for us he represents the new way products will be built and marketed,” said Hamman.
That “new way” means constant communication with investors – the ability to get ideas out at a moment’s notice and answer questions if need be.
So far this year Elfenbein’s list is trailing the S&P by 6%.
But this isn’t over yet.