This ETF Surged While Everyone Else Struggled. How Did It Do It?

Of the 4,179 listed exchange-traded fund (and exchange-traded notes), guess how many made positive returns last quarter? Brace yourself: Only 184. Of those, I had to go down the list in the June figures to No. 55 to find a U.S. equities-focused fund that wasn't an inverse or levered inverse fund. The fund that caught my eye is the AGFiQ U.S. Market Neutral Anti-Beta Fund . I was interested to see how the fund managed to return 18.50% over the past quarter while still having long exposure to equities. Let's take a look. AGF Management Knows U.S. Equity Markets Issuer AGF is a Canadian money manager, which, while having only two ETFs listed stateside, has been in business since the 1950s. The firm is extremely familiar with U.S. equity markets and is credited with launching the first Canadian mutual fund to invest exclusively in the U.S. -- way back in 1957. The AGFiQ US Market Neutral Anti-Beta Fund, which was launched in September 2011, has roughly $181 million in assets under management, and sports a net expense ratio of 253-basis points (2.53%) meaning a shareholder with $1,000 invested over a calendar year would pay $25.30 in fees over that period. Why such a high expense ratio? The fund states it has 45-basis points of Operating Expenses and the overage is attributable to acquired fund fees and expenses related to maintaining short positions. Looking over the long term, the fund has admittedly underperformed the broad market, but it has had its moments in the sun during times of market turbulence, like in the fourth quarter of 2018, the first quarter of 2020, and the first half of 2022 as shown below. Secret Sauce of BTAL The fund is passively managed and tracks the Dow Jones U.S. Thematic Market Neutral Low Beta Index. I'm not sure how the word Thematic fits into this strategy, but I'm sure there's an index marketer at Dow Jones who is proud to see this descriptor in the index name. In any event, reviewing the index methodology guide shows that this index is part of an overall family of market-neutral indexes that pair long/short indexes focused on beta, momentum, quality, size, and relative value. Security selection for the beta-focused index starts with the top 1,000 equities that have had at least 52 weeks of returns. Equities that trade less than $10 million per day are excluded, although there is a buffer rule for existing index constituents that lowers that threshold to $7.5 million. Names within each sector are ranked by beta to the broad market and the top and bottom of each list are used to fill in the sector allocation for the respective sub-index. Following the Global Industry Classification Standard (GICS), names are selected so that the resulting high and low beta sub-indexes have sector weighting that matches the overall market. Each sub-index has 200 equally weighted constituents. Looking at second-quarter performance the fund has clearly benefitted from being short the high beta side of the market as I had to look down the list to the 100th contributor to performance to find the first additive long position in Biohaven Pharmaceutical . It isn't until I get halfway into the list of constituents that other long names like American Campus Communities , Dollar General , General Mills , and Kellogg Company show up. Unsurprisingly, the fund benefitted from being short names like Block Inc , Teladoc Health , Snap Inc. , Carvana , and Netflix . Wrap It Up: Can It Do It Again? Those readers who have been investing for a while will be reminded of the adage (and SEC-mandated disclosure) that Past performance is not indicative of future results and I agree wholeheartedly. That said, if you feel like the upcoming quarter is going to look and feel a lot like the quarter we just closed out, then perhaps this fund is worth a closer look.

This ETF Surged While Everyone Else Struggled. How Did It Do It?

The AGFiQ U.S. Market Neutral Anti-Beta Fund managed to return 18.50% over the past quarter -- and, no, it's not an inverse or levered inverse fund.

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