Dent Tactical ETF (fka DENT)

[TREND1]

Will DENT Dent ETFs’ Low-Cost Image?
By Heather Bell
The Dent Tactical ETF, the first offering from AdvisorShares, is now out. And honestly, I just don’t know how to size it up.

Skepticism definitely plays into the mix when considering this new exchange-traded fund (NYSE: DENT).

Ron Rowland has written a recent Seeking Alpha column in which he projects that the ETF will make his April 2010 ETF Deathwatch list. He makes some very interesting and valid points. (You can also see related IU.com stories on DENT's costs and a recent Q&A with Dent about his investment strategies here and here.)

My concern I share with Rowland is with the fund's expense ratio – 1.56 percent before the waiver, and 1.5 percent after.

That’s A LOT of basis points, and it seems to undermine the very foundation of what an ETF is supposed to be all about. According to the Investment Company Institute, the average expense for equity mutual funds in 2008 was 0.99 percent.

That study however, excluded funds of funds, which would be more comparable with DENT.

But there are a bunch of ETFs of ETFs out there following index strategies, and they don’t come close to the costs of DENT.

PowerShares charges 79 basis points, with no waiver, for its funds of funds based on indexes from New Frontier Advisors. Meanwhile, the ones offered by iShares all charge 35 basis points or less, after a 14-basis-point waiver.

Granted, these are still index-based funds, and they are primarily invested in other “in-house” ETFs, but it’s hard not to flinch when you compare those prices with DENT’s.

A key appeal of ETFs has always been that they are cheaper than actively managed mutual funds and many – if not most – index mutual funds.

But until recently, almost all of the funds have managed to keep their expense ratios below 1 percent, which I consider a pretty important barrier. Off the top of my head, the MacroShares are the only ones I can think of that have definitively burst through the 1 percent ceiling, and they are not structured like traditional ETFs.

Basically, DENT isn’t even in the same ballpark as your average ETF in terms of expenses. And I can’t help but wonder if it’s setting a bad precedent—opening the floodgates, as it were—especially with regards to actively managed funds.

To date, actively managed ETFs from PowerShares and Grail Advisors have kept costs at 80 basis points or below. But the AdvisorShares fund nearly doubles that.

So the launch of DENT raises a bunch of questions.

The key one for the fund itself is: Will investors be interested?
But also: Will it outperform? Will it have sufficient liquidity?
And most importantly for ETFs: Will it set the trend for future fees?


http://seekingalpha.com/article/162608-will-dent-dent-etfs-low-cost-image?source=email