Checking In: The Long And The Short Of It
For the investor that has ever wanted to be long a broad swath of country-specific ETFs while also being short a comparable number of country funds, today's “Checking In” candidate, the Mars Hill Global Relative Value ETF (NYSE: GRV) from AdvisorShares, is an ETF worth evaluating.
Just a few weeks shy of its one-year anniversary, the actively managed GRV is certainly one of the pricier ETFs out there in terms of fees with a mutual fund-esque 1.49% expense ratio. That's the lay of the land with actively managed ETFs and perhaps the biggest reason why it has taken this asset class a while to gain traction with investors.
While there is no empirical evidence to suggest GRV's expense ratio has been a problem in terms of attracting assets, the ETF has accumulated just $11.7 million in AUM since its July 2010 debut.
Still, the concept behind GRV is unique as the ETF holds equal (or almost equal) long and short positions on a percentage basis across a variety of country-specific ETFs. These days that means GRV's portfolio is 98.4% long and 98.3% short.
GRV seeks to outperform the MSCI World Index and in today's market, the ETF has taken a defensive posture from the long side. The iShares MSCI United Kingdom Index Fund (NYSE: EWU) gets a weight of over 49% on the long side while defensive sector plays such as the Consumer Staples Select Sector SPDR (NYSE: XLP) and the Vanguard Health Care ETF (NYSE: VHT) are also found among the ETF's top-10 holdings.
On the short side, GRV is astutely short the iShares MSCI Japan Index Fund (NYSE: EWJ) to the tune of over 14% of the ETF's short exposure. Other short plays include the iShares MSCI Brazil Index Fund (NYSE: EWZ) and the iPath MSCI India Index ETN (NYSE: INP), among others.
That approach may be working today, but it leaves GRV quite vulnerable should emerging markets rebound. Adding to that case is the ETF's heavy long exposure to developed markets, which could easily underperform emerging markets if the broader market rallies in the second half of the year.
The bottom line with GRV is that if you can work past the high expense ratio, it is a useful hedge for core portfolio positions in some of the aforementioned country-specific and sector funds. Beyond that, the jury is still out.
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