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The insiders' edge for 40 Act industry executives!
an InvestmentWires' Publication
an InvestmentWires' Publication
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MutualFundWire.com
The insiders' edge for 40 Act industry executives!
an InvestmentWires' Publication |
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Friday, September 9, 2016 Virtus Brings a Post-MPT Shop Into the ETF Biz A Midwestern ETF strategist is teaming up with Virtus [profile] to enter the ETF business, and a Midwestern distribution specialist is pitching in, too.
Virtus ETF Advisers is the advisor to the new fund, while iSectors is the subadvisor. Sumnicht does not have any plans to launch more ETFs just yet. "This is going to be the one for quite a while," Sumnicht tells MFWire. Sumnicht started his eponymous wealth management RIA, Sumnicht & Associates, in 1983. For the first two decades, Sumnicht says, he built portfolios for clients by trying to identify top-performing money managers. Yet in the early 2000s, Sumnicht looked back and found himself dissatisfied with those portfolios' performance for his clients. That dissatisfaction eventually led him to index funds and ETFs and a focus on asset allocation. After beta-testing the new strategy with his own money in 2005, Sumnicht started using the strategy for his clients' money. Eventually, they began offering the approach through other financial advisors, and Sumnicht created a new sister organization, iSectors (tagline: "The Future of Investing"), to offer his strategies through TAMPs like Envestnet to support other FAs. iSectors now has more $200 million in AUM through TAMPs, and that represents 4,000 accounts across 14 iSectors models. Sumnicht characterizes his approach as a "post-modern portfolio theory growth strategy" that is all about diversification. He divides the investable universe into nine core sectors (basic materials, bonds, energy, financials, gold, healthcare, real estate, technology, and utilities), which he contrasts with the famous nine style boxes. (Sumnicht also lays claim to coining the term "liquid alternatives", and liquidalternatives.com redirects to the iSectors website.) Every month Sumnicht and his team plug capital market factors into nine equations (one for each of the nine core sectors). Sumnicht has not changed his algorithm in the 11 years since he first started using it for his own money. "What we're doing is not market timing. It's not sector rotation, not a momentum strategy, not econometrics strategy," Sumnicht says. "It simply is taking modern portfolio theory to a new level of effectiveness." At first, Sumnicht strongly preferred offering his models in separately managed account form, through TAMPs. He favors SMAs for being "totally liquid with extremely low fees." "I refused to look at a mutual fund [or ETF] with our model," Sumnicht says. "Who would do that? It's cheaper to do it this way and clients like it better." Yet he found that a majority of FAs prefer not to use SMAs. FAs, he found, like the wide availability and accessibility offered by the mutual fund and ETF product structures. "They convinced me in the end," Sumnicht says. Enter ETF Investment Solutions (ETF IS), which Virtus bought last year and transformed into Virtus ETF Solutions. Sumnicht praises the Virtus ETF Solutions team for reducing the time and cost needed for iSectors to create and support an ETF. "We really like those guys," Sumnicht says. "It really doesn't change anything for us. We don't really have to add any people or anything." Bill Smalley, executive managing director and head of product strategy and management at Virtus ETF solutions, calls the iSectors ETF launch a "natural extension" of Sumnicht's business. "They actually were pretty aggressive coming after us," Sumnicht says of Virtus. "The goal is to have a compelling family of subadvised products that seamlessly fit alongside each other," Smalley tells MFWire. "It's generally our team that's driving product opportunities. It's us seeking out the highest-quality managers to help us execute that strategy." As for distribution, Sumnicht says, he "never put any time and money into developing a distribution network," beyond having one marketer based in California. Enter Quincy Capital. Paul McConville, president and founder of Quincy and alumnus of Putnam and Guggenheim, praises iSectors as focusing on providing client outcomes more so than on performances, for helping investors figure out if they're "happy with the level of risk that they're taking." "We've been helping them with their messaging and with key account stuff," McConville tells MFWire. Printed from: MFWire.com/story.asp?s=54778 Copyright 2016, InvestmentWires, Inc. All Rights Reserved |
