The alternative alternative ETF

In a recent interview in Wealth Adviser, Andrew Beer describes in detail how Beachhead Capital’s Dynamic Beta Strategy differs from smart beta ETFs and explains why the strategy is a viable option for institutional investors and consultants in search of an “alternative” alternative allocation for their portfolios.

“In 2012 we thought there was an opportunity for US high net worth investors who are sensitive to tax issues to create a product using long ETFs. We wanted to create a product that could match or outperform their long/short hedge fund portfolio but only in long ETFs,” Beer explains.

“We have found that across the industry advisers are becoming more aware and sensitive to fees in their portfolio and there are a number of investment platforms that market themselves as being able to provide exclusive ETFs across a broad range of asset classes. We want to be the alternative allocation for those platforms.”

Increasingly smart beta ETFs seem to be replicating hedge fund strategies but Beer says: “Most of the smart beta products I would not characterise as hedge fund products. Hedge funds make most of their money by determining where opportunities are across markets. We seek to capture that through low cost ETFs, while most smart beta ETFs focus on a narrow segment of a particular equity market. Sometimes that is attractive but often you don’t want to own it.”

Beer sources information on hedge fund trading through studying returns of hedge funds. “That gives us a good indication of what they are invested in today and we complement that with qualitative and anecdotal research understanding how hedge funds are investing and through investor letters and prime brokerage reports.”

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September 15, 2016