New York-based investment manager TrimTabs Asset Management has launched the TrimTabs Float Shrink ETF (BATS: TTAC). The move follows exchange-traded fund provider AdvisorShares’ decision to replace TrimTabs with Wilshire Associates as the sub-advisor for the TrimTabs Float Shrink ETF (NYSE: TTFS) in June 2016.
“We’re extremely excited to be able once again to offer our proven methodology to investors,” commented Charles Biderman, Founder and CEO of TrimTabs Asset Management.
TTAC is primarily focused on generating returns that exceed those of the Russell 3000 Index, a proxy for the total US stock market. Its strategy is to select approximately 100 companies that are both generating free cash flow and reducing their share count without the use of leverage.
“The proprietary algorithm is the secret sauce that helps make the whole thing tick, helping us implement the fund’s active methodology,” added Ted Theodore, Portfolio Manager at TrimTabs Asset Management.
“Free cash flow is the gold standard when it comes to evaluating a company,” Biderman asserted, “which is why it’s integral to TTAC’s methodology.”
By focusing on free cash flow, TrimTabs maintains the methodology is better able to scrutinize the underlying corporate fundamentals of each company. Indeed, management tends to have less discretion on how free cash flow is reported, compared to other metrics such as sales, earnings, assets, or liabilities which can, in some cases, be massaged.
The methodology’s other pillar of focus is on share reductions, also known as “float shrink.” According to TrimTabs, this can prove advantageous for investors holding the stock in question, as they end up holding a “larger piece of the pie.” TrimTabs takes an extra step by ensuring that companies executing buybacks are only doing so with free cash flow, not through additional leverage.
The total expense ratio (TER) of the fund is 0.59%.