The most modest name in this batch belongs to its most complicated fund. It is called Large Cap, it holds large caps, and it then buys put options worth about 45% of the portfolio and asks a futures book to pay for them.
Brandywine Asset Management is a commodity trading adviser founded by Michael Dever in 1982 and run from a converted grist mill in the Pennsylvania countryside. It has spent four decades trading futures, and this family of funds is its first venture into ETFs.
The fund has three parts. The first is ordinary: roughly 100% notional exposure to large US companies, held mostly through other ETFs. The second is a protection strategy of out-of-the-money put options on a large cap index, with a notional value “generally expected to represent approximately 45% of the Fund’s total portfolio value”. The third is a “Return Driver Diversifier Portfolio” of long and short futures across currencies, rates, equity indices and commodities, which exists to earn enough to cover the cost of the puts.
So the investor owns the market, insures part of it, and relies on a managed futures programme to fund the premium. The prospectus is careful to add that the fund “does not seek to provide complete protection against losses”. It sets up a Cayman Islands subsidiary for the futures, which can hold up to 25% of assets, and the fund is a commodity pool. The total expense ratio is 0.70%.
The candour is the best part. The prospectus states plainly that “The Adviser has no experience with managing an ETF, which may limit the Adviser’s effectiveness”. It also discloses three lawsuits against the adviser, two of them arising from a closed legacy hedge fund. Most launch documents bury the uncomfortable facts. This one lists them like ingredients.
BWLB arrives as part of a family, with growth, value and small cap siblings built on the same chassis. A futures shop more than four decades old has decided the ETF wrapper is where the next investor comes from. Whether that investor reads past the word “Large Cap” is another matter.
BMO now launches ETFs the way other firms issue quarterly updates. Six new funds have arrived together, and the issuer’s own ETF Facts library has not caught up with any of them. The listing came first. The paperwork will follow.
Two are securitised credit funds, one European and one global, the European fund offered both unhedged and hedged to the Canadian dollar. They join an asset-backed securities ETF and a AAA CLO ETF already on BMO’s shelf. Canadian investors who never asked for exposure to European residential mortgage bonds can now have it in four flavours.
The most interesting of the six is the Global Short-Term Discount Bond fund, hedged to Canadian dollars. Its domestic sibling selects bonds that “trade near or below par value”, because in Canada much of the return on a discount bond arrives as a capital gain rather than as fully taxed interest. Taking that logic global, and then hedging the currency back, is a tax planner’s idea of adventure.
The other three have names so broad they could be filing categories: Fixed Income, Income and MSCI All Country World Index. There is something admirable about a firm with a range this large still finding unclaimed nouns.
JPMorgan’s European active ETF range has been built largely on Research Enhanced Index funds, which promise to beat the benchmark by a modest margin while staying close enough to it that nobody gets nervous. A global value fund is a different animal. It is a style bet, and style bets have opinions.
The firm already runs a US Value Equity Active UCITS ETF, so this is the same idea applied to the whole world. Value has spent the better part of two decades being the strategy that was about to work. Launching it globally is either conviction or patience, and in value investing those tend to be the same thing.
The same batch brings three new share classes of JPMorgan’s UK Equity Core Active fund to Zurich. Swiss investors are being offered an active British equity portfolio, a market the British themselves have spent years selling.
This is a new distributing share class of one of the most ordinary funds in Europe. It tracks large and mid-caps across developed and emerging markets, around 1,750 holdings, with exclusions for the companies that most investors would rather not own anyway. The existing accumulating class charges 0.25% and holds several billion francs.
The only interesting thing about it is a word that is no longer there. The fund used to be called Xtrackers MSCI AC World ESG Screened. When MSCI renamed its indices, Xtrackers dropped “ESG” from the fund name and told investors that the objectives, policies, risk profile and fees would stay exactly the same. I recently noted a diversity-themed fund being wound down quietly while its own product page used a softer name. This is the gentler version of the same trend: nothing removed but the label.