NEW YORK — When veteran money manager James H. Huguet decided to bring to a broader audience the large-cap approach he uses for
separately managed accounts, he decided to forgo creating a conventional mutual fund.
Instead, the former manager of the St. Petersburg, Fla.-based TA IDEX Great Companies-America Fund, offered by
Transamerica Capital Inc. (and since renamed the TA IDEX
Transamerica Equity Fund), and author of “Great Companies, Great Returns” (Random House, 1999) chose to launch an exchange traded fund.
Back-testing
“We’ve back-tested our model for 10 years, which gives our ETF instant credibility,” said Mr. Huguet, an investment adviser with Tampa, Fla.-based Great Companies Inc., who says that his ETF would have returned 13.75% a year, on average, dating back to 1995.
“If we had created an open-end mutual fund based on the same investment approach, we would have to wait three years until
it received a rating from Morningstar [Inc. of Chicago],” he added.
The Claymore/Great Companies Large-Cap Growth Index ETF, which began trading on the American Stock Exchange this month, is based on the Great Companies Large-Cap Growth Index of 35 to 50 securities.
The index is managed by Mr. Huguet and is based on a proprietary earnings growth and market valuation model.
Using the model, his firm oversees more than $339 million for investors in separately managed accounts.
One of seven
The Great Companies ETF is one of seven brought to market this month by Lisle, Ill.-based Claymore Securities Inc., which has a total of 18 ETFs listed on the Amex. Others include funds based on an index of stocks covered by independent-research firms and on two indexes maintained by Chicago-based Zacks Investment Research.
“Many traditional portfolio managers are reluctant to get into the ETF business, because they fear cannibalizing their funds,” Mr. Huguet said.
“But that’s good news for us; there is a lot of potential in this,” he said.
James Wiandt, publisher of New York-based IndexUniverse.com, believes that fund managers may be drawn to ETFs despite their fears.
“There is a lot of money flying around right now, and it is driving a lot of creative interest in the industry,” he said.
Intellectual capital
One unusual idea that has resulted in a new ETF comes from Chicago-based Ocean Tomo LLC, which calls itself an intellectual-capital merchant bank.
Last year, the firm created the Ocean Tomo 300 Patent Growth Index, which tracks the stocks of 300 companies based on the value of their patents.
The Claymore/Ocean Tomo Growth Index ETF (OTR), which was introduced with the Great Company and five other Claymore ETFs, comprises 60 of the index’s stocks.
“[Intellectual property] is the most valuable asset class of the knowledge economy,” said Keith Cardoza, a managing director at Ocean Tomo.
“It is all about taking things that are meaningful and relevant, and making them investible,” he added.
