AdvisorShares

AdvisorShares Investments, Inc.

Company type	Limited Liability Company (LLC)
Industry	Investment Management
Founded	2006
Founder	Noah Hamman
Headquarters	Bethesda, Maryland
Key people	Noah Hamman Dan Ahrens James Carl Charles Robertson
Products	24 Exchange-Traded Funds (ETFs): U.S. and International Equity, Fixed Income and Alternatives
AUM	US$1,831.04 million
Website	advisorshares.com

AdvisorShares Investments is an innovative investment management firm which offers actively managed exchange-traded funds (ETFs) through the AdvisorShares Trust. The firm offers a variety of investment strategies designed to help investors reach their financial goals. AdvisorShares launched its first active ETF in September 2009 and has since grown to 24 active ETFs and $1.5 billion under management. AdvisorShares provides educational support to help financial advisors and investors understand the benefits of actively managed ETFs and their underlying investment strategies. AdvisorShares is located in Bethesda, Maryland.

AdvisorShares partners with third party advisors who already manage clients’ assets, have a favorable track record, and desire to package their investment strategy using exchange-traded funds. AdvisorShares believes that by accessing the AdvisorShares ETF platform, investment managers will be able to establish their own branded, or “white-labeled,” ETF on a “turn-key” basis and can ease client administration and streamline compliance. Even more significant, by being listed on a major stock exchange, such as the NYSE, investment managers significantly improve their client distribution opportunities , are able to showcase their track record, and can increase assets under management.

Actively Managed Exchange Traded Funds

An actively managed exchange traded fund has a portfolio manager making decisions on the underlying portfolio allocation or otherwise not following a passive investment strategy. Similar to their passive counterparts, actively managed ETFs have a benchmark, but rather than track the associated benchmark, active managers seek to outperform the benchmark based on investment strategies outlined in the fund's prospectus. Actively managed ETFs combine the advantages of a stock or bond-picking manager with the tradability of an ETF, which can be bought or sold on an exchange throughout the day.

According to xtf.com, all 10 of the 10 most expensive active ETFs are AdvisorShares products, as well as 19 out of the top 20 (First Trust Tactical High Yield ETF NYSE: HYLS is ranked at 19th highest).

Founding

Background

Three former Rydex employees, Noah Hamman, Jacob Griffith and Joseph Barrato founded Arrow Funds in February 2006. Less than 7 months after starting Arrow, in August 2006 Noah Hamman, while still acting as the CEO of Arrow Funds, established a separate company called AdvisorShares, allegedly without the knowledge of his two partners "and in violation to his fiduciary duty to Arrow [...] Hamman then systematically diverted to the benefit of himself and AdvisorShares opportunities, assets, and contracts that rightfully belonged to Arrow. [...] When Arrow began to learn of Hamman's competing activities and confronted him regarding those activities, Hamman engaged in further deceptive misconduct by affirmatively misrepresenting the nature and scope of his endeavors on behalf of AdvisorShares". Hamman's employment with Arrow was finally terminated on November 29, 2007, after Arrow Management Committee discovered more information about the nature of Hamman's competing activities. On October 31, 2008 Fund.com purchased its 60% stake in AdvisorShares for an initial payment of $275,000. Hamman started the company out of his residence on 5604 Wilson Lane, Bethesda, Maryland 20814 and Fund.com paid him a base salary of $240,000 per year.

Application for Exemptive Relief

On November 7, 2008 Arrow commenced arbitration proceedings against Hamman and AdvisorShares for usurping Arrow's intellectual property including its business plan in establishing AdvisorShares. Asked when he expected to get SEC approval, Hamman told IndexUniverse, on November 11, 2008 "I do believe we're within a week or two of getting it, based on the feedback we're receiving from the SEC." In January 2009, Arrow Funds requested a hearing with the SEC to challenge AdvisorShares' application for exemptive relief filed the previous month. Arrow and their counsel claimed that Hamman "To enable the Application to proceed, deliberately thwarted and delayed the selection of the Arbitration tribunal members." This request to block the application for exemptive relief was denied on July 20, 2009. "On March 1, 2010, Mr. Hamman, Arrow and the Members agreed to settle the Arbitration"

Unsuccessful Petition for Dissolution of Arrow

On October 10, 2008, Noah Hamman petitioned (under §18-802 of the Deleware LLC Act) a Court in Delaware to dissolve Arrow Investment Advisors, LLC. He claimed that Arrow's managers had mismanaged the company and could not achieve the goals set forth in the original business plan. He alleged that Arrow's managers had: 1) "exposed the Company to liability by violating the particular federal securities laws and regulations under which the Company is required to operate, and have failed to seek appropriate supervision from the broker-dealer for the Company’s specific obligations as a FINRA-licensed representative" 2) "operated the Company for their own financial benefit, and have spent Company funds for their own private use and enjoyment, while paying wages to various employees in an erratic and tardy fashion." 3)"failed to provide to all members an annual operating plan for 2008 as required by the LLC Agreement". On April 23, 2009, the judge in the case dismissed the Petition with prejudice (meaning that because of misconduct on the part of the claimant it can not be refiled), as Hamman failed to provide factual evidence to back his claims and "Hamman was required to press his fiduciary claims in binding arbitration under the Arrow LLC Agreement". "Hamman suggests that merely stating these allegations, virtually without any factual support, is enough to survive a motion to dismiss. [...]Here, the Petition is devoid of any facts supporting Hamman’s first two allegations, such as which of the myriad federal securities laws Arrow must comply with were violated or for what improper personal purposes Barrato and Griffith used Arrow funds and approximately when and how much of Arrow’s funds they misused." The judge seems to suggest revenge as a possible motivation for filing the suit: "And, although Hamman might be disappointed that he has been ousted from the management of a company he helped establish,"

Funds

The DENT Tactical ETF (NYSE symbol: DENT)

The Dent Tactical ETF commenced trading on the New York Stock Exchange on September 15, 2009 under the NYSE: DENT. The first product of AdvisorShares Investments, LLC, DENT was actively managed by HS Dent Investment Management, LLC, an independent economic research and forecasting company and publisher of The Dent Method.

HS Dent Investment Management is managed by financial author, Harry S. Dent Jr. "Dent, who penned the New York Times bestseller “The Roaring 2000s: Building the Wealth and Lifestyle You Desire,” predicted the Dow Jones Industrial Average to reach 35,000 more than a decade ago. Then, last year (2011), he called for Dow 3,800." Previously, HS Dent had raised and managed a $2.0 billion mutual fund, AIM Dent Demographic Trends, which was merged into another fund after it lost 80% of its assets.

According to Morningstar, Inc., DENT had highest expense ratio among ETFs, 1.5% of assets, as of July 2011. In fact, John Rekenthaler, Morningstar's vice president of research, said "If there was ever a fund set up to fail, this is it […]There are very few examples of funds that are high-turnover, tactical, market-timing and high-expense that do well, and Harry Dent's name isn't associated with one of those exceptions."

DENT closed in August 2012. Its last day of trading was August 8, 2012 and remaining investments were returned to shareholders on August 15, 2012.

The Mars Hill Global Relative Value ETF (NYSE symbol: GRV)

The Mars Hill Global Relative Value ETF commenced trading on the New York Stock Exchange on July 9, 2010 under the NYSE Ticker: GRV. The second product of AdvisorShares Investments, LLC, GRV was actively managed by Jason Huntley of Mars Hill Partners, LLC, an SEC-registered investment adviser based in Colorado Springs, Colorado, and an affiliate of private wealth manager Huntley Thatcher Ellsworth, Ltd.

GRV was the industry's first actively managed long/short ETF. Long/Short describes an investing strategy primarily used by hedge funds, that combines long positions in the most attractive country, sector and/or industry ETFs, with an equal dollar amount short in the least attractive country, sector and/or industry ETFs. The strategy strives to profit from the performance spread between its long and short positions. These relative value spreads are prevalent throughout both rising and falling market environments.

While GRV managed to raise $38 million a month after it launched, investors fled until the fund had only $3.2 million left. On December 1, 2011, Accuvest Global Advisors took over management of the fund and changed the name and ticker to AdvisorShares Accuvest Global Long Short ETF (AGLS).

The WCM/BNY Mellon Focused Growth ADR ETF (NYSE symbol: AADR)

The WCM/BNY Mellon Focused Growth ADR ETF commenced trading on the New York Stock Exchange on July 21, 2010 under the ticker NYSE: AADR. The third product of AdvisorShares Investments, LLC, AADR is actively managed by WCM Investment Management, a 100% employee-owned investment advisory firm based in Laguna Beach, California.

AADR is the industry's first actively managed international ETF, investing primarily in American Depositary Receipts(ADRs). BNY Mellon, the world's largest depositary for ADRs provides the primary benchmark to the ETF as well as expertise within the ADR industry to the AADR portfolio management team. The investment objective of AADR is long-term capital appreciation above international benchmarks such as the BNY Mellon Classic ADR Index and the MSCI EAFE Index.

The TrimTabs Float Shrink ETF (NYSE symbol: TTFS)

AdvisorShares teamed up with TrimTabs Investment Research to launch the AdvisorShares TrimTabs Float Shrink ETF (TTFS) on October 4, 2011. "TTFS is sub-advised by TrimTabs Asset Management ("Portfolio Manager"), a subsidiary of TrimTabs Investment Research (TrimTabs). The Fund seeks to achieve this objective by investing in stocks with liquidity and fundamental characteristics that are historically associated with superior long-term performance. Stock selection for TTFS is based on extensive historical research from TrimTabs, the leading independent institutional research firm focusing on stock prices as a function of supply and demand rather than value." Charles Biderman is the CEO of TrimTabs and a Portfolio Manager for the ETF along with Minyi Chen. Subsequently, TrimTabs has filed with the SEC to launch their own self-indexed ETFs without the aid of AdvisorShares.

The Global Echo ETF (NYSE Symbol: GIVE) and partnership with Philippe Cousteau Jr.

In May 2012, Philippe Cousteau, Jr. partnered with AdvisorShares to launch the AdvisorShares Global Echo ETF on the New York Stock Exchange NYSE: GIVE as well as the formation of Global Echo Foundation, a 501 (c)(3) of which he serves as Co-founder and Chairman. Part of the management fee for GIVE goes to the foundation. The Global Echo Foundation provides resources to solve many of the challenges facing the world community from social issues impacting women and children to environmental conservation, as well as supporting social entrepreneurship. This was not the first ETF to donate a portion of its management fee to charity: "Global X debuted its Food ETF (NYSE: EATX) in 2011 it announced that a portion of the management fees would be given to support Action Against Hunger, a humanitarian group that sought to end world hunger. EATX struggled to gather assets, and was shuttered in the first quarter of 2012." One potential concern investors may have about investing in GIVE is that they don't get a tax write-off for the portion of the management fee that is donated to the charitable foundation, whereas an individual donating the proceeds of a profitable investment to an eligible charity would be able to get a substantial tax write-off.

Other controversies

"Esposito Securities LLC sued Maryland-based AdvisorShares in Dallas County Court. Esposito claims that the parties signed a mutual nondisclosure agreement in November 2010 and began sharing confidential, nonpublic information with each other." At one point, Esposito explored the possibility of buying an interest in AdvisorShares, but negotiations between the two broke down in mid-2012. "Esposito says, AdvisorShares officer Dan S. Ahrens began sharing confidential information with Esposito's clients and told them not to do business with Esposito. 'Ahrens continually contacted Esposito's clients alleging false, damaging information regarding Esposito, including but not limited to, the fact that Esposito has stolen intellectual property, which is false,' the complaint states."[...] "Esposito claims AdvisorShares violated SEC [actually FINRA] Rule 5250 by interfering with its client relationships and directing its clients to a market maker and seeding partner." Esposito filed an amended petition on February 22, 2013. The plaintiff alleges that "AdvisorShares induced [former Esposito employee, Justin] Burns to breach his confidentiality agreement whether by financial incentive or the promise of an ongoing broker relationship" and then "strong-armed" sub-advisors to cease trading with Esposito and to instead place trades with Knight Securities, "a broker that was subject to an SEC investigation at the time." "Due to the financial inventive implicit in Defendent's directing fund business to Knight Securities, Defendant is placing its own financial interests in front of its fiduciary responsibility to find the most qualified broker option for the fund."

Fund.com Inc. v. AdvisorShares Investments, LLC, Index No. 650321/2012, (11/27/12) (Schweitzer, J.)

Company management

• Noah Hamman, Founder and CEO
• Dan Stuart Ahrens, Executive Vice President; formerly managed the Vice Fund
• James Eugene Carl, Vice President of Business Development, National Sales Director
• Charles Robertson, Director of Marketing

See also

• American Depositary Receipts (ADRs)
• Exchange-traded fund
• Global X Funds
• Harry Dent
• Investment Company Act of 1940
• IShares
• Long/Short investing strategy
• Philippe Cousteau, Jr.
• PowerShares
• Vice Fund
• WisdomTree Investments

External links

• AdvisorShares Investments, LLC
• WCM Investment Management