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Friday, September 25, 2020

An Arkansas SMA Shop Makes an ETF Push

Reported by Katherine Robertson

A family-office-turned-SMA-manager is entering the ETF business. The team at Fayetteville, Arkansas-based Cabana Asset Management is launching a suite of Target Drawdown ETFs, in partnership with the private label ETF advisor Exchange Traded Concepts (ETC). This suite's five strategies are designed to help the investor grow long-term wealth by defining the maximum expected percentage loss, running from 5 to 16 percent depending on the option. The suite of ETFs is being seeded with $1 billion in assets.

George "Chadd" Chaddwick Mason
The Cabana Group
"First and foremost on investors' minds is risk," Chadd Mason , co-founder and CEO of Cabana, tells MFWire. He explains that the key to keeping investors invested is being clear about potential risk. "Numerically, in terms of real drawdown peak to trough, how clear and easy it is to understand the investment process and what’s intended allows for the downstream investor to understand and then engage. They are much more likely to get involved in something they understand."

Mason says that their clear strategies and focus on avoiding large losses distinguishes Cabana from other products.

"I am a believer of keeping things simple," Mason says. "One of the things that's really a foundation of what we do is we really are big believers in modern portfolio theory, the idea of avoiding large losses."

Mason says that while many strategies avoid small losses, which are more prevalent than larger losses, they are not as impactful.

"We're willing to take small losses, what we're trying to do is avoid the catastrophic losses," Mason says, adding that "We don't ever get out of the market. [We're] removing risk incrementally,"

Mason tells MFWire that regulatory changes in 2019 encouraged the choice to launch the suite of ETFs. Additionally, he believes in the efficiency of the ETF structure: "[The ETF launch] allows us to really push forward in making our products more transparent and more efficient. The ETF structure really removes a lot of cost."

Furthermore, Mason says that the addition of ETFs will help the firm expand on what they already have with separately managed accounts.

"We've been running separately managed accounts for a long, long time. Now we are able to improve on those by wrapping the legacy of those in ETF structure," he says. "[This] gives us an opportunity for the same efficiencies, cost transparency, and use our algorithm in perhaps a better way to further optimize the portfolio."

Mason tells MFWire that ETC was the ideal partner as they allowed Cabana to "control the process."

"At the end of the day we had a really good organic distribution channel, we've achieved a pretty significant footprint in the pond that we play in," Mason says. "It made sense for us to control the process. ETC makes a lot of sense in that regard."

Mason adds that the off-the-shelf ETF provides for a lot of distribution opportunities in areas such as "wirehouses, broker-dealers, and other advisors who are looking for a sleeve solution as opposed to core ETF providers."

In terms of future products, Mason says that Cabana will be looking to offer similar solutions for other world markets, such as the Canadian or European markets. He mentions that the firm is working on certain sector specific risk management products as well.

"[We are] very interested in being able to apply the same methodology whether it be the energy sector of the transportation sector providing the same sort of transparency risk and drawdown as it relates to that sector," he says. 

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