Fiduciary ETFs: Trust in active management in order to match Indexing's AUM
Fiduciary Best-Practices in a Suite of ETFs (patents pending)
About Us
Trust in active ETF management can be increased to draw investments that match the AUM of passive indexing. How? Create a Suite of Active Multi-Manager ETFs with the Highest Fiduciary Standards for all operations. Then build a moat around the suite of ETFs.
Fiduciary ETFs are for all investors, and
Target Fiduciaries Investing $13 Trillion.
Thomas Forma is founder & CEO of Fiduciary ETFs. Tom filed multiple ETF patents and trademarks after retiring in 2020 as SVP & Senior Institutional Consultant at Morgan Stanley. The ETFs address major issues facing institutional investors and wealthy families, with Tom's patents pending. He founded Fiduciary ETFs to provide the trust necessary for active ETF management to match the AUM growth of passive indexing. Trust is earned by bringing fiduciary best-practices to multi-manager active ETFs. He also has patents pending for specially designed ETFs that recreate the benefits of dual-purpose closed-end funds, such as the Gemini Dual-Purpose CEF that was run by Wellington's star, John Neff (who also ran the Windsor Fund for 30 years).
Tom retired after 38 years of institutional advisory experience with municipalities, corporations, and nonprofit organizations,
and Ultra High Net Worth Families. Tom's experience, knowledge and perspectives have been recognized by Morgan Stanley's designations of Senior Institutional Consultant, Government Entity Specialist, and Family Wealth Director. Prior to Morgan Stanley,
Tom was 1 of 75 Institutional Consultants at Merrill Lynch.
Dual-purpose ETFs: High Income at AAA-level & Growth at 2x
Fiduciary ETFs' Dual-Purpose ETFs: leverage with a dose of security
Dual-Purpose ETFs create innovative transformations by duplicating of existing portfolios.
John Neff was Wellington Management's star PM in the '70's and 80's. He managed Wellington's Windsor Fund for 30 years, as well as Wellington’s Gemini I & II Dual-Purpose Closed End Funds. It is time to reintroduce dual-purpose funds using a structure specially designed for today's ETFs (patents pending).
The innovation is inexpensive to run if it simply duplicates the portfolio of an existing fund or ETF portfolio.
The dual-purpose ETF structure provides a strong addition to many ETF sponsors’ product lineup.
Let’s look at the power of dual-purpose ETFs in an example using 2 ETFs, one ETF designed to offer high current income of AAA quality, and a second ETF for aggressive investors seeking capital gains using a leverage feature that has no margin, no loans, no forex carry and no derivatives.
The structure is built on five parameters, outlined here for this example of a dual-purpose ETF.
1. Two ETFs with complementary objectives (i.e., the Income ETF and the Growth ETF).
2. Both ETFs invest in a single underlying portfolio (e.g., each contributing 50% cash). Duplicating the portfolio of an existing fund or ETF is perfect.
3. UNEQUALLY divide the portfolio’s features between the two ETFs. In this example the Income ETF receives all the portfolio's income and pays all expenses, while the Growth ETF receives all the portfolio's appreciation/losses and bears no expenses. As a result, the initial leverage of 2x is created without margin, loans, forex carry or derivatives.
4. A Termination Date for the Income ETF only.
5. A Moat is built around the ETFs by licensing the pending patents for the dual-purpose ETFs (fee is 1 basis point of AUM per year).
In this example, at issuance the Income ETF is scheduled to terminate in 15 years, when it will return the Income ETF’s original issue value to shareholders. At termination of the Income ETF, the Growth ETF retains all remaining assets and capital gains (shorter or longer termination dates can be used for other dual-purpose ETFs).
Key benefits of this example include:
• Realizing Gains while Keeping the Leveraged Income Stream: Investors who buy both ETFs, at an advantageous moment can sell the Growth ETF in the secondary market and realize the Growth ETF’s capital gains. By holding the Income ETF they can continue to receive the full portfolio's income stream, which initially is double the portfolio’s net dividends.
• Enhanced income: The Income ETF’s starting yield is twice the net dividend rate of the underlying portfolio. For example, a 2.75% net yield is doubled to 5.5% for the Income ETF shareholders. This is a very high yield from high quality stocks. Note: the ratios change as the portfolio grows over time.
• Amplified growth: The Growth ETF’s initial performance is twice that of the overall portfolio. For example, a portfolio with a first-year return of 12% provides the Growth ETF with a 24% gain. Note: the ratios change as the portfolio grows over time.
• Loan-less leverage: The 2:1 income and growth ratios occur without the use of margin, loans, forex carry or derivatives. As a result, the new ETFs can be used by institutions that prohibit loans and derivatives in their investment policy statements.
• Efficient to launch and profitable to manage by duplicating an existing portfolio. The structure can be built on existing strategies. Duplicating the portfolios of existing funds and ETFs offers cost efficiency, familiar investment behavior for modeling, and the possibility of using an existing track record in sales material, with Morningstar, FactSet and ratings agencies (Note: we believe the Income Shares deserve a AAA credit rating in our example with the 15 year termination of the Income ETF).
• Innovator’s advantage: The 2025 pending patents cover investment companies with complementary objectives that invest in a single portfolio. We would be pleased to share patent information. Again, the annual licensing fee is 1 basis point of AUM.
• Swiftly attract large investments from decumulation investors: the dual-purpose ETF structure will appeal to everyone, but especially to the largest investors, all with obligations to make periodic payments. These institutions include defined benefit plans, defined contribution plans, endowments, foundations, insurance companies, and family offices. In the U.S. just among 39 large decumulation institutions there is $8.5 trillion invested, and each of these institutions has over $50 billion in assets. They could be among the first contacts during the initial offering.
We welcome the opportunity to provide many more details, and to discuss how this concept could align with your firm’s capabilities and client objectives. The patent pending dual-purpose ETF structure offers meaningful benefits to your firm and your investors.
