The most disciplined sentence in a new prospectus says that between quarterly reviews the fund “will not add a fourth issuer”. It is an emerging markets fund, and it holds three.
The method is simple enough to fit on a napkin. The sub-adviser, EMQQ Global, first decides which emerging markets companies qualify as AI semiconductor and computing businesses, then buys the three largest by market capitalisation. The prospectus names them: Taiwan Semiconductor Manufacturing, Samsung Electronics and SK Hynix.
The eligible universe, according to the same document, spans 22 countries, from Brazil and India to Kuwait, Egypt, Chile and the Czech Republic. The portfolio spans two. Most of those countries will never see a holding, which is less a flaw than a very long list of places the fund has checked and politely declined.
It is also worth noticing what two of the three companies make. I recently wrote about the memory trade, the one part of the AI supply chain with a well-documented habit of savage cyclicality. Samsung and SK Hynix are, above all, memory makers. So, two thirds of this fund is that same bet, held through an emerging markets label.
The rules for the third slot are where the drafting becomes beautiful. If two candidates are tied, or within 1% of each other on market value, the tie goes to the one with the higher three-month average daily trading volume. If that is also tied, the winner is whichever stock has traded longest on its home exchange. Someone has thought very carefully about a situation that will almost never happen. Methodology docs are wonderful for pedants.
The fee is 0.76%, which works out at roughly a quarter of a percentage point per stock. Exposure may also come through swaps and forwards, so even the three names can arrive partly by contract rather than by shares.
Two new funds have arrived at the same idea: own the Nasdaq 100, then earn income by selling insurance against it falling. Both do this with put credit spreads, selling one put and buying a cheaper one further down. Neither writes calls, so neither caps the upside directly.
The Overlay Shares version targets, but does not guarantee, a 12% annual distribution, paid monthly, using options that typically expire within one to two weeks. When markets fall, its stated response is to sell fewer puts or move the protective ones closer.
Tuttle then adds a second layer. Every afternoon the fund plans to put on a fresh hedge that expires the next trading day: sell one put near the market, buy two further down. The structure pays off in a sharp fall, and the prospectus is admirably frank about what happens in a gentle one. The fund's return “may be more negative than the Reference Asset during certain modest declines”.
So the income comes from selling puts, and part of the protection also involves selling a put. The fee is 0.95% and distributions are intended weekly. Buying a fund to sell insurance, and then paying it to buy insurance every afternoon, is a very complete service.
The AI hardware story is now being sold by the part. Value Partners has listed what it calls the world's first actively managed ETF dedicated to the printed circuit board ecosystem, a short while after listing an optical communication fund under a neighbouring stock code.
Printed circuit boards are the unglamorous green slabs that everything else is soldered onto, and most of the supply chain sits in Asia. The case for active management is that some board makers have genuine technological leadership at the advanced end of the business and others do not.
The ongoing charges figure is 1.5%, of which 0.99% is the management fee. That is about twice what EMAG charges, for a fund that holds rather more than three companies and arguably has to work harder to find them.
I recently noted Fidelity's enhanced-yield pair, which sells calls for income. Here is the other half of the same filing: the funds that use options to cushion the downside instead.
The design is the interesting bit. Most buffer products set a fixed level and a fixed outcome period. Fidelity's buffer, in the firm’s words, “is designed to adjust gradually over time as markets move and is not guaranteed”. The target is to soften “moderate market declines” while keeping participation in gains, layered on top of the firm's Research Enhanced equity portfolios.
Put that next to the Tuttle fund above and the market has now covered both kinds of bad day. One product is built for sharp falls and admits it may do worse in modest ones. This one is built for modest falls. Investors need only know in advance which kind is coming.
Crédit Mutuel Asset Management, the fund arm of one of France's large mutual banks, has listed an MSCI World tracker. It follows an emerging markets sibling from the same house; that fund is synthetically replicated and registered for distribution in France only.