AdvisorShares, the Bethesda, Maryland-based funds provider of non-index tracking products, has announced the launch of the AdvisorShares Pring Turner Business Cycle ETF (DBIZ), an actively managed fund that seeks long-term growth and capital appreciation across different economic and market cycles through the application of business cycle, technical and fundamental analysis.
DBIZ will be managed by Pring Turner Capital Group, the Walnut Creek, California-based registered investment advisor recognized internationally for its application of proprietary business cycle research. The fund utilizes its business cycle research to proactively change asset allocations and sector-emphasis to optimize returns and minimize risks. DBIZ will invest in three primary asset classes comprising of stocks, bonds and commodities across a wide range of business sectors.
To achieve its investment objective, the fund may invest in US and foreign equity securities, including common and preferred stocks, corporate debt securities rated BBB and above, American Depository receipts, affiliated and unaffiliated exchange-traded funds, exchange-traded notes (ETNs), and cash and cash equivalents. DBIZ may invest in securities of any market sector and in any capitalization range as deemed necessary to achieve its investment objective.
The fund is an actively managed ETF and hence doesn’t seek to replicate the performance of a specified underlying index of securities. Rather it aims to use its “six stage” business cycle strategy based on a model that corresponds to the current stage of business and economic cycle.
The current business cycle is determined by analyzing historical business-cycle data as financial markets rotate through the typical four-to-five year business cycle swings. Since each of the three primary asset classes will either be in a cyclical bull or bear market, there are six possible stages of a business cycle.
Pring Turner has developed three models, one for each asset class, through a combination of trend following, momentum and inter-asset relationships for identifying the current stage of business cycle. The models try to identify significant market turning points at an early stage.
Asset allocation levels are decided after a business cycle stage has been identified. The portfolio is dynamically adjusted and sector-emphases are adjusted as the business cycle progresses.
Once both business cycle stage and asset allocation levels are determined, the advisor uses empirical data to determine the performance of economic sectors at a particular stage. For example, consumer staples and utilities may be appropriate sectors during deflationary periods. Energy and industrials tend to outperform during inflationary part of business cycles.
The advisor uses a combination of intermediate trends and technical indicators to select individual securities or ETPs that are best suited to take advantage of the business cycle and the economic sector.
Fundamental-analysis procedures are used in addition to technical-analysis methods to evaluate the value, quality and future potentials of individual securities. Unleveraged inverse ETFs, which are designed to provide a return opposite of an index – typically for one day, may be used occasionally to stabilize the portfolio’s returns.
DBIZ has an annual expense ratio of 1.62 percent, which is pretty pricey, but if performance warrants it, the costs are not out of line. Much more historical data is needed to before I can pass judgment as to whether DMIZ is suited for the use with trend tracking.
Disclosure: No holdings