Black Swan ETF - A Lesson Learned from Hedge FundsSubscribe
Since the beginning of time (or the 2007 global financial crisis - whichever comes first), investors have sought ways to protect themselves from economic hard times. Whether it is investing in gold or other precious metals, trying to win from market volatility (VIX and tonic, anyone?), or by getting out of equities all together (high grade bonds + cash = safe + safer), investors seek a safe haven during the hardest times.
In the past five years, new strategies have been formed on how to best deal with risk. Today, Horizons Universa rolled out two new ETF's: Horizons Universa Canadian Black Swan ETF and Horizons Universa US Black Swan ETF. Both of these funds are designed to profit when times are tough.
Dubbed black swan in reference to Black Swan events, or unforeseen and unpredictable events (Japan's nuclear meltdown, the global financial crisis, Canada invading the US, 2012 end of the world, etc.), these two ETF's have a notable caveat. There is a 1% management fee and a 20% performance fee!
1 and 20? That is less than most hedge funds you say. But it is nearly unheard of in the world of ETF's. The 1% management fee is nearly four times the norm for ETF's (according to Morningstar analyst John Gabriel), and the 20% performance fee will kick in if the funds beat the S&P or TSX indexes.
Is incorporating these funds in your portfolio worth it? Well, there isn't much data to go by yet, but the fees are daunting for an ETF. If these funds can regularly beat the index during a bull market (even if by a smidge), and they crush it during a bear market, they might just be worth the fees. What do you think
This brings me to my second question. Do you think there will be a trend for "hot" ETF's to start charging higher fees and large performance fees? If you are a portfolio manager (of any type) and you can generate solid year over year returns, why not charge a performance fee?
Will these hot ETF's be the new hedge funds of 2012 and beyond?