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Tuesday, June 7, 2016

Did This Subadvisor Just Get Ghosted?

News summary by MFWire's editors

The subadvisor to a five-star, actively-managed ETF just got replaced. That subadvisor is looking for answers.

Noah Hamman
AdvisorShares Investments
Founder, Chief Executive Officer
Bethesda, Maryland-based AdvisorShares [profile] revealed on May 26 that, effective July 1, Santa Monica, California-based Wilshire Associates will take over as the subadvisor of the $177-million, five-star, four-and-a-half-year-old AdvisorShares TrimTabs Float Shrink ETF (TTFS), which will be rebranded as the AdvisorShares Wilshire Buyback ETF. Wilshire will replace New York City-based Trim Tabs Asset Management, and Trim Tabs responded with a press release questioning "the appropriateness of the decision." Watch for Trim Tabs to launch a new ETF based on the same strategy.

MFWire could not reach AdvisorShares founder and CEO Noah Hamman, sales and distribution managing director James Carl, or an AdvisorShares spokesperson for comment on why they're making the switch.

"We're still trying to understand," Alan Rubenfeld, director of sales at Trim Tabs, tells MFWire. "We've never been given a written explanation by AdvisorShares and neither have they given an explanation to their shareholders."

Ted Theodore, chief investment officer at Trim Tabs and PM for the ETF, tells MFWire that AdvisorShares is allowed to change subadvisors without "running it past shareholders" or explaining the decision.

"We're puzzled ... It can't be for performance reasons," Theodore says, pointing to the ETF's strong track record. Indeed, Barron's calls TTFS "one of the most successful actively managed stock ETFs by assets ... with nearly one full percentage point of S&P 500 outperformance annually over the past three years, according to Morningstar." The Wall Street Journal reports that the ETF "has outperformed the overall stock market by an average of about 2 percentage points annually since the fund was launched in late 2011, according to AdvisorShares' own website."

"We've never violated any guidelines or restrictions," Theodore adds.

The strategy behind TTFS is proprietary to Trim Tabs, Theodore says, so "whatever happens next, the strategy has to be different" under a different subadvisor. Meanwhile, the Trim Tabs folks are working on putting "the exact same strategy" into a brand new ETF, within their own Trim Tabs ETF trust. They launched their first in-house ETF last year.

"We intend to have a series of funds," Theodore says. "In the meantime we're going to be offering SMAs with the exact same strategy."

Research analyst Charles Biderman founded TrimTabs Investment Research in 1990, and he created sister company TrimTabs Asset Management twenty years later. TTFS was TrimTabs Asset Management's first commercial product. The shop now has "a little under $200 million in AUM", Theodore says, and five investment professionals. 

Edited by: Neil Anderson, Managing Editor

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