US fund manager Harbor Capital Advisors is forging ahead with its plans to roll out a range of market leading active ETFs. Although most ETFs on the market are still passive, index tracking vehicles, an increasing number of US fund managers are exploring the idea of running an active investment strategy that can be bought and sold as a listed ETF.
Harbor Capital announced this month it is launching a Long / Short Equity ETF under the LSEQ ticker in the US (NYSE). The fund is being managed by hedge fund Disciplined Alpha and will use an actively managed, multi-asset approach. It will be taking long and short positions in US large and mid cap stocks.
Disciplined Alpha employs a structured quantitative approach. Key components include the use of a proprietary macroeconomic regime model to determine gross and net exposure, as well as weights for value, neutral, or momentum factors.
The hedge fund manager also prioritizes industry groups perceived to offer substantial alpha opportunities. Within these groups, the long model incorporates proprietary stock selection factors derived from discussions with company management and third-party fundamental analysts. Additionally, a distinct short model is applied to manage the short side of the fund’s portfolio.
“It goes without saying that we at Harbor stand firm on our belief that active managers need to be truly active to add value,” said Kristof Gleich, President and CIO at Harbor Capital Advisors. “We’re also thrilled to partner with Disciplined Alpha. Their creative and innovative research approach, systematic processes and disciplined implementation has enabled them to manage and develop investment strategies to meet the needs of qualified institutional investors all around the globe.”
Operationally, the new fund launch is being supported by tech company Truss Edge out of Chicago. The new launch is one of the very few long / short equity fund strategies currently available in an ETF wrapper, and required the expertise of Truss Edge in assisting day to day operations from both an ETF and hedge fund perspective, as Truss Edge works with both types of clients.
Jay Duffy, CEO of Truss Edge, said: “We are very excited to be bringing a pioneering fund like the Harbor Capital Long-Short Equity ETF to the market; it required our teams and tech to clearly demonstrate how we can support both hedge fund and ETF operational procedures at the same time. With many fund managers now considering the active ETF wrapper as a new and exciting route to market, Truss Edge’s software is well designed to help them to meet these challenges.”
The launch represents proof of concept for the wider hedge fund community that an ETF approach can work for an active strategy. There is a broader shared view within both the American and European fund management communities that the ETF wrapper is the structure of the future for new launches.
ETFs also hold out the possibility for wider accessibility to hedge fund strategies on the part of smaller investors, who can access these strategies using more conventional stock trading accounts. It represents another important step forward in the wider process of democratization of investment services.
