White-label exchange-traded fund issuer Alpha Architect recently brought another client's product to market with the launch of the Bridges Capital Tactical ETF (BDGS) .
A number of traditional mutual fund issuers are starting to explore the ETF marketplace, and regular readers may have picked up on an emerging trend of independent money managers embracing ETFs. My take is that they are doing this as a way to extend their reach to non-qualified investors. Part of that trend seems to be newly formed or relatively young managers' embrace of this "product wrapper," as it is referred to in the industry. Let's take a look at Bridges Capital and its new fund.
Bridge to Alpha?
Florida-based Bridges Capital was founded in 2018 and per its website looks to offer both investment and tax management services. Reading through the regulatory filings (Form ADV Part 1, Part 2) Bridges has reported assets under management of roughly $11 million as of Jan. 11, and reports fees ranging from 90 to 120 basis points (BPS) although the filing states that "all [firm] fees and minimums are subject to negotiation."
As with all the other products we have reviewed, the same conflict of interest language reminding potential ETF shareholders that Bridges may end up prioritizing its own clients with regard to trade timing and allocation show up in the fund's Statement of Additional Information (SAI). That said, there is language outlining processes Bridges has in place to mitigate these risks.
BDGS
The fund launched on May 11 and sports a 78-basis point expense ratio, so $1,000 invested over a calendar year will see $7.80 of that principal go toward paying fees.
BDGS is an actively managed product that "seeks to provide capital appreciation with a focus on capital preservation during periods determined by the Sub-Adviser to pose greater risk of overall market drawdowns." The starting selection universe includes large-capitalization U.S. equity securities (as defined by the top 10 market cap names in both the S&P 500 and Nasdaq 100 indexes) as well as other ETFs tracking broad market indexes like SPX, NDX, and the Russell 2000 index.
Expectations are that the fund will generally be 80% invested in broad market exposure vehicles and 20% invested in individual equities. Current holdings bear this out as 85% of the current portfolio is allocated to the SPDR Bloomberg 1-3 month T-Bill ETF (BIL) and the balance is allocated to Alphabet (GOOG) , Amazon (AMZN) , Nvidia Corp (NVDA) , Microsoft (MSFT) , Apple (AAPL) , Pepsico (PEP) , Exxon Mobil (XOM) and Meta Platforms (META) .
Overall allocation decisions are based on market breadth and overall volatility. Breadth refers to how many constituents of a given index are driving changes in those indexes' daily change. Assumedly, a narrow-based rally will invite more scrutiny while broad-based moves will be viewed as more stable. Volatility is measured using the implied volatility of index options with both one month and three months to expiration. Finally, expectations are that the portfolio will be rebalanced anywhere from 2 to 6 times per year, depending on the macro outlook. The more bullish, the more rebalance points.
Wrap It Up
While Bridges is relatively new to this space, the Pareto Principle (known as the 80/20 rule, that 80% of results can be traced back to 20% of actors) approach kind of reminds me of a "core-satellite" approach. The core in this case being the broad market allocation bucket and the satellites being the individual company exposures. As with all the other new active funds, I can't make any recommendations at his point but will keep an eye on this fund's progress as it builds both assets and a track record.
(AAPL, AMZN, MSFT and PEP are holdings in the Action Alerts PLUS member club . Want to be alerted before AAP buys or sells these stocks? Learn more now. )
