ETFs available in Separately Managed Account Portfolios

Will this change how America invests?

Sander Gerber, chairman and CEO of New York based XTF, L. P. hopes to "revolutionize investment options for consumers," using exchange traded funds (ETF's) in separately managed account (SMA) portfolios. With low fees and intraday trading--unlike most mutual funds--ETF's are gaining popularity with investors, and capturing some of the capital that previously might have gone into stock index mutual funds. Now Gerber is launching a suite of SMA portfolios that use a proprietary, quantitative portfolio management model to select the most efficient ETF's, and manage those and other assets in portfolios that he says have outperformed the total returns of benchmark portfolios while at the same time lowering risk. Advisors can select from conservative, moderate or aggressive portfolios and choose whether or not to include an international component in the SMA.

After making markets in options and then in ETF's, and managing a pool of his own capital, Gerber teamed up with mutual fund and fixed-income research veteran Robert Adler, now president of XTF, to create this group of ETF SMA portfolios that use XTF's "proprietary tactical asset allocation process (TAA)," says Gerber. They select the ETF's they use in the portfolios from the entire universe of U. S. domestic ETF's, and have no affiliation with any ETF provider.

According to Gerber, the "tactical SMA brings an active management component to what was typically a passive" type of portfolio. The ETF/TAA process is based on the Ibbotson Model, and uses proprietary, quantitative models for portfolio management and asset allocation that provide "signals" calling for adjustments to the portfolio.

Where XTF/TAA SMA portfolios differ from other ETF portfolios is that XTF applies the TAA proprietary model continuously and they use "very modest tweaks" to change the weighting of various components within the portfolios, to "switch the equity percentage relative to fixed income; small-cap relative to large-cap; and growth relative to value," says Adler. That doesn't mean that trades occur every day, but if necessary they could rebalance daily. The passive strategic asset allocation (SAA) model that XTF/TAA is benchmarked against is rebalanced quarterly.

XTF back-tested performance of its proprietary XTF/TAA model versus the passive SAA model and found that XTF/TAA portfolios outperformed by 1% per year, on average, with lower risk. Back testing showed that even when the XTF/TAA model was applied with quarterly or monthly rebalancing, instead of daily rebalancing, they still consistently outperformed the passive SAA benchmark. Dr. Edward Nelling, of Drexel University, audited the back testing.

Fees for the XTF/TAA SMA are 50 basis points when sold through advisors, or they can be utilized through wrap programs. The XTF SMA's have been "warmly received by Fidelity Investments for use in its RIA platform," says Gerber, adding that with the tactical model, the rebalancing, and use of ETF's, XTF is out to "transform the way America invests."

Reprints Discuss this story
This is where the comments go.