This is Just the Beginning ... of an ETF Series and a Distro Strat
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Monday, November 5, 2018

This is Just the Beginning ... of an ETF Series and a Distro Strat

A SoCal ETF entrepreneur launched an ETF with a new ally last week. Watch for that partnership to expand to a whole series while he hunts for other similar allies as part of his new take on distribution.

On Thursday Reality Shares [profile] (the ETF arm of San Diego-based Blockforce Capital) launched the Reality Shares Fundstrat DQM Long ETF (DQML). The new fund tracks the Fundstrat Doctor Quant Model U.S. Large Cap Equal Weighted Long Index, licensed from New York City-based Fundstrat Global Advisors, which offers research and model portfolios to institutional investors. This is Fundstrat's first time in the ETF space, confirms Tom Lee, managing partner and head of reseearch.

"This is just the beginning of probably a whole new series of ETFs," Eric Ervin, CEO of Blockforce, tells MFWire. "This is really true smart beta, smarter beta."

Fundstrat's index uses a proprietary, multi-factor model to rank U.S. large-cap stocks, then narrows that down to the top 100 (out of the 500 biggest companies). This first Reality Shares Fundstrat ETF simply tracks that index, but Ervin foresees teaming up again to launch other ETFs built on the same model.

"We might do a long-short version of that model," Ervin says.

"We do have a lot of indices that we track and that our institutional clients use," Lee tells MFWire. "I'm sure there's room for a lot of future things."

The Fundstrat alliance and the new ETF gives Reality Shares a way in with the institutional investors that Fundstrat already serves, Ervin says. Many of those investors build their own strategies off of Fundstrat's models and research, yet some may find the ETF version useful, Lee says. And Ervin's on the hunt for more partners like Fundstrat, firms with established brands and customer bases who might want to move into the ETF space without doing it themselves.

"That would be our distribution strategy going forward: to find better, stronger partners," not building a giant sales to go out and "pound on doors," Ervin says. "We're pretty good at creating really compelling offerings. It's just trying to figure out ways to get those offerings into the world that is the big challenge."

As for Fundstrat, Lee praises Ervin as "a good partner for something that [Fundstrat's] clients seemed to be interested in."

"We're excited," Lee says, describing the new ETF as "one of the first ETFs that is tracked by an index that is produced by an independent research firm."

Reality Shares now offers seven of its own ETFs and powers an eighth.

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