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AdvisorShares Investments, Inc.
Company typeLimited Liability Company (LLC)
IndustryInvestment Management
Founded2006
FounderNoah Hamman
HeadquartersBethesda, Maryland
Key people
Noah Hamman
Dan Ahrens
James Carl
Charles Robertson
Products24 Exchange-Traded Funds (ETFs): U.S. and International Equity, Fixed Income and Alternatives
AUMUS$1,831.04 million[1]
ParentFund.com
Websiteadvisorshares.com

AdvisorShares Investments is a US-based investment management firm which offers actively managed exchange-traded funds (ETFs) through the AdvisorShares Trust. The firm is based in Bethesda, Maryland and launched its first active ETF fund in 2009.[2] By 2014 it had 24 active ETFs and $1.83 billion under management.[3] AdvisorShares is a subsidiary of Fund.com, which has a 60% ownership interest.[4]

AdvisorShares partners with third party financial advisers who already manage clients’ assets to package their investment strategy using exchange-traded funds. As part of promoting its funds it also provides educational support to help financial advisors and investors understand actively managed ETFs and their underlying investment strategies.[5] [6]

History

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. The partners said this was a "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 was fired by Arrow on November 29, 2007, after Arrow Management Committee discovered more information about the nature of Hamman's competing activities.[7]

On October 31, 2008 Fund.com purchased its 60% stake in AdvisorShares for an initial payment of $275,000.[8] Fund.com paid him a base salary of $240,000 per year.[9]

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." [10] 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." [7] This request to block the application for exemptive relief was denied on July 20, 2009.[11] "On March 1, 2010, Mr. Hamman, Arrow and the Members agreed to settle the Arbitration"[12]

Unsuccessful Petition for Dissolution of Arrow Investment Advisors

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," [13]

Funds

Complete lists of funds

  • AdvisorShares WCM/BNYMellon Focused Growth ADR ETF NYSE: AADR
  • AdvisorShares Accuvest Global Opportunities ETF NYSE: ACCU
  • AdvisorShares Accuvest Global Long Short ETF NYSE: AGLS
  • AdvisorShares Pring Turner Business Cycle ETF NYSE: DBIZ
  • AdvisorShares EquityPro ETF NYSE: EPRO
  • AdvisorShares Madrona Global Bond ETF NYSE: FWDB
  • AdvisorShares Madrona Domestic ETF NYSE: FWDD
  • AdvisorShares Madrona International ETF NYSE: FWDI
  • AdvisorShares Global Echo ETF NYSE: GIVE
  • AdvisorShares Cambria Global Tactical ETF NYSE: GTAA
  • AdvisorShares Ranger Equity Bear ETF NYSE: HDGE
  • AdvisorShares Athena International Bear ETF NYSE: HDGI
  • AdvisorShares Peritus High Yield ETF NYSE: HYLD
  • AdvisorShares Meidell Tactical Advantage ETF NYSE: MATH
  • AdvisorShares Newfleet Multi-Sector Income ETF NYSE: MINC
  • AdvisorShares QAM Equity Hedge ETF NYSE: QEH
  • AdvisorShares TrimTabs Float Shrink ETF NYSE: TTFS
  • AdvisorShares STAR Global Buy-Write ETF NYSE: VEGA

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.[14]

HS Dent Investment Management is managed by financial author, Harry S. Dent Jr. "Dent predicted the Dow Jones Industrial Average to reach 35,000 more than a decade ago. Then, in 2011, he called for Dow 3,800."[15] 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.[16]

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."[17]

DENT closed in August 2012.[18] Its last day of trading was August 8, 2012 and remaining investments were returned to shareholders on August 15, 2012.[19]

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.

While GRV managed to raise $38 million a month after it launched, investors fled until the fund had only $3.2 million left.[20] 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).[21]

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 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.[22]

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. 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.[23]

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.

EATX struggled to gather assets, and was shuttered in the first quarter of 2012."[24] 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.[25]

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."[26] At one point, Esposito explored the possibility of buying an interest in AdvisorShares, but negotiations between the two broke down in mid-2012.[27] "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."[26] 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." [27]

Ownership dispute with Fund.com Inc

Fund.com Inc. v. AdvisorShares Investments, LLC, Index No. 650321/2012, (11/27/12) (Schweitzer, J.) {see pages 6 and 7}[28]

Relative Expense Ratios

Some sources have indicated that AdvisorShares has high expense ratios for many of their products. [29] While this is somewhat accurate, the firm is contractually bound by the fund’s prospectus and has agreed to keep net expenses from exceeding a certain level. Many of the funds have an expense waiver. Waivers prevent the fund’s expenses from exceeding a predetermined level. Any expenses that exceed the expense cap are not passed on to the shareholders.[30]

See also

References

  1. ^ Tran, Hung. "ETF League Table As Of May 15, 2014".
  2. ^ "AdvisorShares Investments, Initiates Public Offering Launching its Unique Exchange Traded Fund Platform for Investment Advisors and Lists on the New York Stock Exchange (NYSE Ticker: DENT)". ETF Daily News.
  3. ^ Jeff Benjamin. "Are active ETFs finally growing in popularity?". Investment News.
  4. ^ Stern, Richard. "Fund.com Subsidiary, AdvisorShares, Partners with BNY Mellon and WCM Investment Management to Launch WCM/BNY Mellon Focused Growth ADR ETF". PR Newswire.
  5. ^ "AdvisorShares Launches Four Gold ETFs". Financial Advisor Magazine.
  6. ^ "AdvisorShares". Nasdaq.
  7. ^ a b "Request for Hearing on Application of AdvisorSharesInvestments,LLC and AdvisorSharesTrust,Investment Company Act Release No. 28568; 812-13488" (PDF).
  8. ^ "AdvisorShares Investments, LLC Purchase and Contribution Agreement".
  9. ^ "Employment Agreement". Law Insider.
  10. ^ "AdvisorShares' Hamman: No Transparency Issues with Active ETFs". IndexUniverse.
  11. ^ "INVESTMENT COMPANY ACT OF 1940 [Release No. 28822".
  12. ^ "FORM 8-K Fund.com".
  13. ^ "IN RE ARROW INVESTMENT ADVISORS, LLC,". casetext.
  14. ^ "AdvisorShares Investments, LLC Brings a Tailored ETF Investment Vehicle to the Marketplace". Reuters. September 17, 2009.
  15. ^ Conway, Brendan. "In A Shift, Dent ETF Will Close Instead Of Merging". Barrons.
  16. ^ Roth, Allan. "Second Dent investment fund to disappear". CBS News.
  17. ^ Burton, Jonathan. "His Forecasts of Booms and Busts Sell Lots of Books. But an ETF? Maybe Not". The Wall Street Journal.
  18. ^ "Harry Dent Tactical ETF Gets The Ax".
  19. ^ "AdvisorShares Announces the Closing of the Dent Tactical ETF (DENT)". Reuters. July 25, 2012.
  20. ^ Murphy, Cinthia. "AdvisorShares' GRV To Get A Makeover". IndexUniverse.
  21. ^ "AdvisorShares Accuvest Global Long Short ETF (AGLS) Page".
  22. ^ "AdvisorShares Set to Launch First Actively Managed International ETF". Marketwire.com. Retrieved 2014-02-27.
  23. ^ Bell, Heather. "ETF Watch: WisdomTree Debuts Japan Sectors". etf.com.
  24. ^ Johnston, Michael. "AdvisorShares Launches Global Echo ETF (GIVE)".
  25. ^ Ferri, Rick. "This ETF is Bound to be Underwater".
  26. ^ a b "Nasty Doings Alleged in Investment Business". Courthouse News Service.
  27. ^ a b "ESPOSITO SECURITIES, LLC, v. ADVISORSHARES INVESTMENTS, LLC" (PDF).
  28. ^ http://www.nycourts.gov/courts/comdiv/lawreport/Vol15-No4/Vol%2015-4-website.pdf
  29. ^ . XTF http://www.xtf.com/research/. {{cite web}}: Missing or empty |title= (help)
  30. ^ "Expense Waiver". Morningstar.
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