An Actively Managed ETF That Uses Seasonality

Don Vialoux and Brooke Thackray are the two "seasonality" analysts. They appear regularly on BNN. They look at patterns and trends during the year for several types of stocks. Now they have joined forces and will be managing a new seasonality ETF, run by AlphaPro, another Jovian company (the same one that manages leveraged ETFs in Canada). At least this one is not leveraged, but there are some unpleasant surprises in them.

The ETF will start trading Tuesday, symbol HAC in Toronto, and will invest in markets or sectors that typically rally in different parts of the year. The managers will no follow a buy-and-hold strategy. This part is great.

Don Vialoux who runs http://www.timingthemarket.ca/techtalk/, and Brooke Thackray, is author of several books (Thackray's 2010 Investor's Guide), will provide technical analysis for the seasonal patterns.

Says the Globe and Mail: "Mr. Vialoux has said that average optimal date to enter North American equity markets is at the opening on Oct. 28, and the optimal time to leave is at the close on May 5. But that should be fine tuned each year with technical analysis, he contends.
On his Web site, he said the optimal entry point this year was on Nov. 5. Sectors that are attractive at this time of year include information technology, consumer discretion, industrials (sub sector transportation) and basic materials,"

The prospectus say that HAC will try to make money in all market cycles by tactically investing in stocks, bonds, commodities and currencies during periods that have historically demonstrated seasonal trends and/or will sit in significant amounts of cash. It will also do limited short-selling and unfurtunately will invest in ETFs that include the leveraged and inverse ETFs managed by affiliated company BetaPro Management Inc. This is very bad as these ETFs cannot be held for more than one day or investors in on average lose money. On top of this they generate commissions for BetaPro?? Read release.

Here is the worst part. The ETF has a management fee of 0.75%. However, AlphaPro will also get a performance fee that will be equal to 20% of the amount by which the performance exceeds the "high water mark" and outperforms the one year Government of Canada Treasury Bill rate (which is silly as it is near zero).

A nice idea that somehow went ashtray.