By Jason Zweig | June 3, 2016 3:57 pm ET
Image credit: Winslow Homer, “The Veteran in a New Field” (1865), the Metropolitan Museum of Art
It isn’t often that fund managers get fired for poor performance, and it is almost unheard of for them to get the axe amid good performance — but that appears to have happened at one firm.
On May 26, AdvisorShares, a Bethesda, Md.-based operator of exchange-traded funds, announced that it had removed TrimTabs Asset Management as manager of its TrimTabs Float Shrink ETF, which has about $178 million in assets. AdvisorShares replaced TrimTabs with Wilshire Associates Funds Management, of Santa Monica, Calif., but offered no explanation for the change.
William McVay and Elizabeth Piper/Bach, the fund’s independent trustees, whose approval was required for the change, didn’t respond to requests for comment.Wilshire declined to comment.
Noah Hamman, chief executive of AdvisorShares, said in a statement to The Wall Street Journal that the firm is in “constant communication” with its outside fund managers, “but typically we treat those communications as confidential, especially in situations like this.” He added, “The guiding principle is what we think is in the best interests of the fund investors.”
The statement concluded, “We believe that investors will be excited about the selection of Wilshire as the new sub-adviser for this fund and the lowering of the total expense ratio,” which will drop to 0.90% annually from 0.99%.
On the face of it, the move is puzzling. The TrimTabs ETF, which invests in 100 stocks whose total share count is shrinking, whose cash flow is growing and whose debt isn’t increasing as a percentage of assets, has outperformed the overall stock market by an average of about 2 percentage points annually since the fund was launched in late 2011, according to AdvisorShares’s own website.
In a November 2014 press release announcing that the TrimTabs fund had earned five stars, the top rating from the fund-research firm Morningstar, Mr. Hamman said, “This ranking is further testament to TrimTabs’ industry-leading portfolio management delivered with the sought-after benefits of a transparent active ETF structure.”
Now TrimTabs is firing back. “Our shareholders have expressed disappointment that they would now be forced to accept a different investment strategy than what they originally purchased,” said TrimTabs’ chief executive, Charles Biderman, in a press release on Thursday.
In an interview, Mr. Biderman said, “We’ve done a great job, and for some reason they’re kicking us out, and we don’t know why.”
He said TrimTabs developed its stock-selection criteria over three decades of research. “We plan to relaunch the strategy as an ETF with a much lower fee,” he said, adding that he expected that to take about three months.
Total assets at AdvisorShares, which peaked at $1.8 billion in mid-2014, were down to $1.1 billion as of the end of April, according to Morningstar.