Actively Managed ETFs - Interview With Noah Hamman - AdvisorShares

Noah Hamman is the CEO and founder of AdvisorShares investments. AdvisorShares is one of the first companies to offer exchange-traded funds that are "actively-managed." Their ETFs currently on the market include WCM/BNY Mellon Focused Growth ADR ETF AADR, DENT Tactical ETF DENT and Mars Hill Global Relative Value ETF GRV and they will be launching the Peritus High Yield ETF HYLD some time down the road.

This interview is also available as an episode of the Benzinga Podcast:

First off, can you tell us a little bit about yourself and AdvisorShares.

I have been in the financial services business for 20 years on both the broker and asset management side. AdvisorShares is an actively managed exchanged-traded fund firm. We have a unique approach to the market. We were one of the first firms to offer actively managed ETFs and we work with other underlying sub-advisors, who are all experts in their fields.

Can you explain the physical process behind how an exchange-traded fund works?

ETFs are very similar to mutual funds. The registration, compliance, and rules are very much the same. We follow prospectus and registration statements and make it available on an exchange so people can buy it in their brokerage account with a ticker. So, it really is just a mutual fund that offers its shares on exchange.

So how does someone judge the value of an actively managed ETF ? For example, when the news comes out that one of your funds got a good return, do people buy up the stock?

Kind of, information is readily available, which is a good thing about these ETFs. Because it is exchange-traded, you can always pull up the ticker symbol. For example, GRV is a product we recently launched and when you pull up that ticker you can see the current prices that are available.

ETFs are mutual funds at their core, but they do have a net asset value that they strike at the end of the day and we make available through the exchange's indicative value. It is available every 15 seconds throughout the day showing what the estimate of the net asset value should be. That helps you look at the bid/ask price and determine whether or not it is trading at or close to its NAV. For example, GRV/IV is a ticker you can type to pull up that calculation.

What would cause the price of a share to go higher or lower than the indicative value?

The nice thing is that if it gets too far from the indicative value there is the ability to take advantage of arbitrage. It rarely happens, but that functionality is inherent in the structure of an ETF, so that it keeps trading at or near NAV. There are a variety of things that can influence it, for instance, lot of buying or selling pressure or a very volatile market can cause the spreads to widen.

You were an early pioneer of bringing brokerages, portfolio management, etc. to the web. What was that like?

I worked for a couple of interesting firms, but one in particular where we were bringing investment managing tools to the web was Foliofn that allowed you to create your own basket of securities. You could almost create your own custom ETF. It allowed you to take a lot of control over what you had in there and what you took out. You could trade things from a tax perspective, if you were looking for some efficiency there. It was a very interesting idea then, and even so today, as they allow people to take more control and have more custom solutions built for themselves.

Are traditional brokerages on their way out? In what other ways is technology changing finance and investing?

I do think that people still want to rely on someone who is in that space all day long and does the homework and due diligence. You still want to go to a professional doctor to get treated and you still want to do the same in financial markets no matter how good the technology is.

What gave you the idea for an actively-managed ETF?

I think it came form my experience at Rydex, where I had an opportunity to build out their index-based ETFs. I have always been a fan of professional money management. I thought having someone in the driver's seat was important and people liked it better too. Imagine buying a car today and not being able to lift up the hood. If you bought that car, you have the right look under there and make sure everything's there. Today with some of the investment products you do not have that right, which seems strange to me.

Excluding your own offerings, what kinds of ETFs do you think people should invest in?

That's a good question and it is hard to exclude my ETFs from that answer. I think having products that can react to changes in volatile markets and help you through that volatility are important.

Okay, now that we've got the hard questions out of the way we've got some fun ones. What was your first, and what was your worst job?

Wow. My first job was at Chess King, which most of your listeners will not recognize or remember. I sold skinny ties. My worst job was either a grocery store bagger or putting in sprinkler systems in the heat of the summer in Texas.

What do you like to do outside of finance?

I love my job, so during the day I do my job and outside the day I spend a certain amount of time learning more about it. I am interested in reading what other people write about investment management. I have two kids, which certainly takes up a lot of the time and getting on my bike as often as possible is something I love to do.

What is your favorite restaurant?

That is a tough one! I do not know if it is based on the quality of food or if someone actually gave me a free meal. We have a couple of nice places here in Maryland I like to go to. In general, I am more of a casual restaurant type.

Where do you like to vacation?

That one is easy for me. When I am taking time off, the last thing I want to do is to go to a place where I have to do things or learn a new language. I want to find a beach and have nothing to do.

And here's our trademark question we ask all our guests: If you could offer Benzinga one piece of advice to help grow its business and success, what would it be?

I would say keep communicating with original content. That is thething people are hungry for.