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Monday, March 20, 2017

A Maryland Shop Shoots For Distro Expansion

Reported by Neil Anderson, Managing Editor

After three years of revamping some of his products, Joe Barrato is looking to expand his distribution team. And he has new funds in the hopper, too.

Joe Barrato
Arrow Funds
CEO, Director of Investment Strategies
"Really the next step for us is to take the company from where we are ... and getting us to the next level," Barrato, CEO and director of investment strategies for Olney, Maryland-based Arrow Funds [profile], tells MFWire. "That's going to be really focused on enhancing distribution."

After boosting the distribution team over the last year, Arrow now has seven external wholesalers and four internal wholesalers, all focused on its traditional mutual funds. Barrato's business partner, Jake Griffith, serves as president and director of sales.

"We are looking to add three people to the outside team and then maybe another person on the inside team," Barrato says. "We're very close to getting ourselves geared up for that."

Arrow also has a separate ETF sales team.

"We have three people focused on the ETF front and we want to expand that," Barrato says.

Arrow now has about $750 million in AUM across its three ETFs and five traditional mutual funds. Barrato expects to launch three more ETFs and one more traditional mutual fund this year, boosting Arrow's product lineup by 50 percent. Arrow has also filed to create the ArrowShares Reserve Capital Management ETF, subadvised by Halyard Asset Management.

"We have two products sitting on the shelf that are actively filed with the SEC and they're ready to go," Barrato adds. Those two products, he says, are "awaiting strategic development."

"We're still focused on tactical and/or alternative strategies that will be helpful to the investment advisor and ultimately to the end investor," Barrato says.

Arrow Funds' eight-year-old research firm, Arrow Insights has a weekly publication and a quarterly newsletter. The Arrow continues to publish new indexes in the newsletter, well before creating funds out of them. Looking ahead, Barrato sees opportunity for creating funds out of Arrow's managed futures index or for its low volatility strategy. The newsletter currently publishes five indexes, one of which Arrow uses for one of its own funds. And for some of Arrow's indexes, Barrato would prefer to partner up with outside shops, to avoid creating passive Arrow funds that would compete with existing active Arrow funds.

"In the course of this year we'll start publishing maybe two or three other indices," Barrato says. "It's a good way to incubate our strategies," ideas that the Arrow team strongly believes in but maybe the market isn't quite ready for yet.

"Indices are a way to educate the marketplace," Barrato adds.

Barrato distribution and product expansion plans follow three years of revamping some of Arrow's products. The Arrow Alternative Solutions Fund, now a five-star fund with $157.9 million in AUM, is now a non-traditional bond fund. Previously, fixed income was one of three pieces of the strategy.

"One basket was delivering the alpha," Barrato explains.

For the Arrow Managed Futures Strategy Fund, now a two-star fund with $128.6 million in AUM, they teamed up with Dunne Capital in October 2015.

"They're one of the best managers on the planet," Barrato says. "We made our managed futures fund replicate that strategy in our mutual fund wrapper ... We had to adapt or die."

For Arrow's flagship fund, the Arrow DWA Balanced Fund powered by Dorsey Wright which is now a two-star fund with $134 million in AUM, over the last two years they've tweaked one piece and added another. The fund is a strategy of different ETF models, yet recently Arrow has shifted away from ETFs to individual stocks inside of the sector rotation model in the fund. And at the beginning of the year they added Dunne's high volatility strategy to the fund, too.

"We use the balanced fund as a means to articulate what we think everybody should be doing with high volatility strategies," Barrato says, describing the shifts as the "beginning of a multistage process of enhancing [Arrow's] strategy of strategists." More enhancements are coming, he says.

"I see the balanced fund becoming more of a strategy of our own strategies," Barrato adds. 

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