SmartETFs are managed by Guinness Atkinson Asset Management. Guinness Atkinson was formed in 2002 and began managing the Guinness Atkinson Funds in 2003. The key executives of Guinness Atkinson previously worked together at predecessor companies and the oldest of our mutual funds was launched in 1994.
Our portfolio management team is located in London, England. Our US headquarters is in Pasadena, California.
Conventionally, investment concepts are classified by industries, sectors and asset classes. This made sense when companies fit into neatly defined categories. Rapid change is making this classification system obsolete. Think of your favorite search engine and the company behind it. Is it a media company? Is it a technology company? Is it an entertainment company? Yes (and more) is the answer. In our rapidly changing world, investment opportunities aren’t always easy to classify by industry or sector. When you start to think thematically the investment landscape changes. The SmartETFs family of ETFs are designed to capitalize on investment opportunities thematically. We think that’s smart.
SmartETFs are actively managed, which means rather than have our holdings dictated by an index, which may or may not be intelligently constructed or subject to intelligent oversight, we actually research and understand the companies we invest in.
In selecting the individual stocks to invest in we go through a number of steps:
Step one is identifying the companies that meet our thematic constraints. We delete from this universe companies that are too small or too illiquid.
The universe is just our starting point. From there we do in-depth analysis of every stock in the universe. This analysis is highly quantitative; a deep dive in the financial history and an analysis of a variety of financial metrics. Key among these is a consistency of cash flow and profitability and comparison to industry peers. There is also a subjective analysis done for every company. The process is both art and science.
We prefer to invest in companies that consistently produce above average return on invested capital. The criterion doesn’t always apply; often rapidly growing companies are reinvesting cash and don’t necessarily score well during the ramp up phase. But all things considered, we prefer profitable companies that consistently produce above-average returns. Quality also means low debt levels and good balance sheets. Again, some companies we invest in won’t meet these criteria, but it is generally an important element.
With this groundwork in place, we’re confident that the companies we select have the potential to outperform their peers. Company by company, we build a portfolio of equities that we understand from the bottom-up and from the top-down.
PORTFOLIO CONSTRUCTION: EQUALLY WEIGHTED & SET NUMBER OF HOLDINGS
We build our portfolios in an intelligent manner as well. Rather than weight our stocks by market cap, we weight our holdings equally. We also hold a set number of positions in each of our portfolios, typically 30 or 35 holdings. Equal weights helps manage stock specific risk. Note that the positions are never exactly equal…as stocks move up and down relative to each other the weightings change. We do re-balance as circumstances dictate, we don’t re-balance slavishly as we seek to reduce transaction costs and keep the turnover low. In some markets we’re restricted to round lots. All of this is to say that the portfolio will never be perfectly equally balanced. But if you look at the holdings in our ETFs you’ll see that the holdings are roughly equal. We think that’s smart.