IN FOCUS: WCM/BNY Mellon Focused Growth ADR ETF (AADR)

(NYSE:AADR) is an actively-managed ETF that looks to achieve long-term capital appreciation above international equity benchmarks. The fund will invest in non-US companies that trade on US exchanges through American Depositary Receipts (ADRs). The fund is sub-advised by WCM Investment Management which analyzes major trends in the global economy in order to identify those economic sectors and industries most likely to benefit. The managers look at a time horizon of 3-5 years and believe in portfolio concentration. The portfolio will typically consist of fewer than 30 companies, but will have a minimum of 20 holdings, none of which will exceed more than 25% of the portfolio in weight. AADR’s primary benchmark is the BNY Mellon Classic ADR Index and its secondary benchmark is the MSCI EAFE Index.

Portfolio Managers:

WCM Investment Management is California-based sub-advisor that was established in 1976 and managed $1.4 billion in assets as of Mar 31, 2010. The individuals handling the day-to-day management of the portfolio are as follows:

Paul R. Black, Portfolio Manager – Paul is the President & co-CEO of WCM and has been in the investment business for 26 years. He helps define the firm’s investment strategy and has an active role in the selection of securities.

Kurt R. Winrich, Portfolio Manager – Kurt is the Chairman & co-CEO of WCM and has over 25 years of experience in the investment business. His primary responsibilities include portfolio management and equity research.

Peter J. Hunkel, Portfolio Manager, Business Analyst – Peter joined WCM in 2007 and has been in the investment business for 11 years, with previous experience at Centurion Alliance and Templeton Private Client Group.

Michael B. Trigg, Portfolio Manager, Business Analyst – Michael has 9 years of experience in the investment business and previously worked at Morningstar.

The Numbers:

Expense Ratio – 1.25%, including 0.75% in management fees. Expenses capped below 1.25% till May 6, 2011.

What’s special about it?

1. (NYSE:AADR) is the only Active ETF that focuses on providing exposure through ADRs. By virtue of its mandate, AADR will end up having exposure to international mega-caps that are listed in the US like Nestle and, two companies which can be found in the fund’s top 10 holdings.

2. Partnering with BNY Mellon does give the fund a big advantage because BNY Mellon is the world’s largest depository for ADRs and is a leading source for international ADR market intelligence.

3. The fund’s sector and region diversification differs significantly from that composition of its benchmark indices – the BNY Mellon Classic ADR Index and the MSCI EAFE Index, but that’s where the managers hope to add value to the fund.


Positives –

– The managers, WCM Investment Management, have quite a strong track record in managing international portfolios. The prospectus highlights the performance of a “Focused Growth International Composite” that has similar objectives and investment strategies to the fund. The composite outperformed the MSCI EAFE by close to 9%, since inception in Dec, 2004.

Negatives –

AADR’s expense ratio of 1.25% comes in at the high end of the Active ETF market, and it is only capped at 1.25% till May, 2011. The gross expenses for the fund are actually 1.29%.

– The portfolio concentration could lead to more volatile returns, implying greater upside during good times but also greater downside during bad times.

Written By Shishir Nigam from ActiveETFs | InFocus

Shishir Nigam is the founder of ActiveETFs | InFocus (, which provides extensive coverage and analysis of actively-managed ETFs in US and Canada, including debates on major industry trends, insights on the latest product launches from issuers in the Active ETF space as well as in-depth interviews with industry executives and thought leaders.

Disclosure: No positions in above-mentioned names.
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