New York based investment manager TrimTabs Asset Management has launched the TrimTabs Float Shrink ETF under the ticker (BATS: TTAC). This follows AdvisorShares’ decision to replace TrimTabs as the Sub-Advisor for TTFS as of 30 June 2016.
The firm writes that in less than 90 days, TrimTabs is ready to begin rolling out their new line of free cash flow products. TrimTabs will be using its proprietary algorithmic approach to the new ETF.
“We’re extremely excited to be able once again to offer our proven methodology to investors,” says Charles Biderman, Founder and CEO of TrimTabs Asset Management.
“The proprietary algorithm is the secret sauce that helps make the whole thing tick, helping us implement the fund’s active methodology,” says Ted Theodore, (pictured) Portfolio Manager at TrimTabs Asset Management.
TTAC is primarily focused on generating long-term gains that exceed those of the Russell 3000 Index through selecting approximately 100 companies that are both generating free cash flow and reducing their share count without the use of leverage.
“Free cash flow is the gold standard when it comes to evaluating a company,” Biderman says, “which is why it’s integral to TTAC’s methodology.” Free cash flow is a particularly powerful indicator of a company’s financial health, enabling closer scrutiny of underlying corporate fundamentals, and making it easier to identify quality companies with growing cash reserves. While managements have enormous discretion in how they report sales, earnings, assets, and liabilities, free cash flow is much less likely to be subject to the same financial gimmickry.
Another pillar of TTAC’s investment methodology is a focus on share reductions, also known as ‘float shrink’. Companies execute share reductions by lowering the amount of shares outstanding, most commonly through stock buybacks, though this can also be accomplished with other corporate actions. This can prove advantageous for investors holding the stock in question, as they end up holding a ‘larger piece of the pie’, the firm explains. TrimTabs takes an extra step by ensuring that companies executing buybacks are only doing so with free cash flow, not through additional leverage.
The Fund’s expense ratio will be 0.59 per cent, against the 0.99 per cent fee that TrimTabs charged under AdvisorShares.