FAQ

Question
Answer
How are your Funds managed?

AGFiQ ETFs are designed to track specific Dow Jones custom indices.

What types of stocks are in the Funds?

Reflecting the composition of the index, AGFiQ will buy and sell baskets of stocks within a specific market index such as the Dow Jones U.S. Market Index.

What are Factors?

Factors are drivers of equity returns that are common across securities. Our ETFs track the Dow Jones indices that use commonly known quantitative factors such as price momentum, value, and quality, beta, and market capitalization.

What are the advantages of using Factors?

Factors have been demonstrated historically to be an uncorrelated source of equity returns that have the potential to enhance the risk-adjusted returns of a portfolio.

What does market neutral mean?

Market neutral means an equal overall dollar exposure to long and short securities. Returns are generated by the performance spread between the long and short positions. A market neutral fund allows for the driver of the fund's performance to be the exposure to individual factors, and therefore returns are not dependent upon market performance. 

Why are your funds equal weighted?

Equal weighted portfolios have the same exposure to each stock regardless of the market capitalization of any particular security. For example, AGFiQ U.S. Market Neutral Funds will have approximately a 0.50% weight in each long and short position when it rebalances monthly. This allows the Fund to maximize its factor exposure and minimize stock specific exposure. We use an equal weight approach because a market capitalization approach could lead to outsized weightings in stocks that rank less favorably due solely to their market cap.

Why are your funds sector neutral?

Sector neutral means equal weighting of long and short positions within a fund by sector. This eliminates exposures to any individual sector and allows the specific factors to generate the spread returns.

What are the costs of AGFiQ ETFs?

AGFiQ market neutral ETFs trade on NYSE Arca and may be purchased and sold through a broker similar to any other stock trade. Brokers typically charge a commission to execute these trades. The ETFs are generally comprised of an equal amount of long stock positions and short stock positions. In order to offer an investor a market neutral product, the portfolio managers will engage in short selling trades which incur an additional cost to the Fund. Details of the Funds operating fees may be found in the Fund's prospectus.

Can I short AGFiQ ETFs?

Yes. AGFiQ ETFs may be sold short subject to the terms of your individual brokerage account.

Can AGFiQ ETFs be bought on margin?

Yes. AGFiQ ETFs can be purchased on margin through your brokerage account. Check with your broker for details specific to your account.

How can AGFiQ ETFs be used?

AGFiQ ETFs can be used to potentially 1) increase portfolio diversification, 2) hedge risks in existing portfolios, 3) be part of an asset allocation program and 4) gain factor exposure.

How should I think about combining these funds with more traditional long-only ETFs?

Combining some of AGFiQ ETFs with the market exposure from traditional long only ETFs has the potential to provide stronger risk adjusted returns than that achieved by long only ETFs alone.

Are the Funds tax efficient?

The structural differences between ETFs and mutual funds can materially affect taxable capital gain distributions. Shareholders of AGFiQ ETFs can expect to defer some of their capital gains until they sell their shares. This is different than long-short mutual funds where the managers trading activity in the fund generates capital gains and losses. Further, ETFs may create and redeem shares with in-kind transactions which are not taxable events. It should be noted the create and redeem process is only relevant to long positions and therefore the tax benefits applies only to the long positions.

What is the best source of information to read up on factors?

Most major sell-side firms have quantitative research groups that publish regular pieces on factor investing.

What is the experience of the Funds' portfolio managers?

Our portfolio managers have successfully managed active quantitative equity funds collectively for more than 30 years. These funds include long-only, 130/30, market neutral and enhanced index strategies for both institutional and retail investors.

Are redemption fees charges on AGFiQ ETFs?

There are no redemption fees when AGFiQ ETFs are sold on the exchange. Only customary brokerage fees and other transactional fees apply. When AGFiQ ETFs are redeemed directly from a fund certain fees apply. See the individual AGFiQ ETFs fund prospectuses for details. Because investors will generally be able to sell AGFiQ ETFs at the market price on the exchange through a registered broker or dealer, subject only to customary brokerage commissions and no redemption fees, investors are advised to consult their brokers, dealers or investment advisors before redeeming AGFiQ ETFs.

What are Spread Returns?

Our market neutral ETFs seek to generate positive returns when after expenses, the basket of approximately 200 names that the fund buys(long positions) outperform the basket of approximately 200 names that we sell (short positions). Our ETFs combine bullish and bearish positions within one ETF. The spread return generated between the buys and sells is what is important, not the absolute return of the market.

If the long positions rise more than the short positions the ETFs will generate positive returns. Additionally, if the long positions fall less than the short positions the spread return will be positive. Therefore, regardless of the direction of the overall stock market, up, down or sideways, as long as the long positions outperform the short positions the Fund will have a positive return. Alternatively, the fund will have a negative return when the long positions underperform the short positions regardless of the direction of the market. The performance of the Fund will depend on the differences in the rate of return between these long and short positions. 

How to trade AGFiQ ETFs

Institutional investors, RIAs, financial advisors and anyone else trading an ETF that is composed of liquid underlying securities can find immediate liquidity and execution for large trades in that ETF at very low cost, regardless of the ETF's trading volume and bid/ask quote depth. Unlike a regular equity security in which there is a somewhat fixed number of shares outstanding, ETFs can create new shares and therefore additional liquidity as frequently as necessary. Institutional traders called "Authorized Participants"" (APs) use the creation and redemption process to bolster ETF volume and satisfy market demand. Liquid portfolios make it easier for an AP to cover the cost of creating additional shares of the ETF, thus facilitating low cost execution. The more liquid the underlying securities are, the easier and cheaper it is for an AP to create more shares and meet demand. The APs will buy the underlying positions and deliver these securities to the fund's custodian in exchange for shares of the ETF that they can turn around and sell to their clients. This process reinforces that printed volume does not represent true market liquidity and, in fact, can actually be a very misleading indicator of an ETF's liquidity and in turn the true cost of trading.

Clients who have larger orders above 10,000 shares can place a direct (principal trade) with a broker at a pre-negotiated price close to NAV. The broker that a client can trade with is either also an AP or has direct access to an AP desk, which will be able to execute the trade directly. Sourcing liquidity through a principal trade with a sell-side counterparty minimizes market risk and also helps the client to establish a price prior to execution.

Source: Seeking Alpha Nov.15, 2011

AGFiQ Authorized Participants

  • Barclays
  • Citi
  • Credit Suisse
  • Deutsche Bank
  • Goldman Sachs
  • JP Morgan
  • Knight Trading
  • Morgan Stanley
  • Nomura
  • UBS

AGFiQ Trading Contact

Kevin Collins
617-292-9801
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