Luke King serves as Managing Director at Main Management. His focus is on trading and business development. We recently spoke with Luke, who will be speaking at our ETF Strategy Summit (Oct. 15 - 16 – Dallas), as he discusses actively managed ETFs and sector rotation.
ETF Strategy Summit: Does the world need any more ETFs? Are we at “peak” ETF?
Luke King: New ETFs bring innovation, competition, and cost savings to the investing public. We view new ETFs and new ETF issuers coming to market as a positive and believe we will continue to see innovation in the ETF space particularly in the area of actively managed ETFs.
ETF Strategy Summit: Are you employing active ETFs in your strategies, and if so, how are you selecting ETF managers?
Luke King: Yes, we employ actively managed ETFs within our investment strategies. We utilize our own actively managed sector rotation ETF as a key holding within some of our investment strategies. In addition, we utilize actively managed ETFs of other ETF issuers with a focus on actively managed fixed income ETFs. When it comes to selecting ETF managers we look at the team, process, track record, and cost in seeking to identify best in breed providers.
ETF Strategy Summit: Can you explain how Main Management meaningfully blends active and passive management through sector rotation?
Luke King: Main Management’s approach seeks out the best aspects of active and passive management by focusing on generating alpha while managing risk and controlling costs. Our sector rotation strategy employs a quantitative and qualitative approach to identify market sectors, sub sectors, and industry groups which appear to be undervalued and have a positive catalyst present which may propel them to revert back to a more appropriate valuation. The strategy is implemented with exchange traded funds and has a GIPS verified track record going back to 2002.
ETF Strategy Summit: How does the sector rotation strategy respond to the kind of volatility we saw earlier this year? What about the global financial crisis?
Luke King: The sector rotation strategy is an equity based strategy so it is not immune from market volatility. However, we do have three tools that have helped us successfully navigate the market volatility experienced in February of this year as well as during the global financial crisis. The first tool is to be able to go up to 20% cash which may help cushion the downside and provide us with money to opportunistically put to work. The second tool involves rotating into more defensive sectors. Defensive sectors may help cushion the downside during times of increased volatility. The last tool available to us is the use of covered call options on a portion of the portfolio to potentially further reduce portfolio volatility. These three tools have helped us successfully navigate periods of market volatility in the past and we believe will continue to do so in the future.
ETF Strategy Summit: Are you concerned that certain sectors may be prone to disruption and long-term multiple compression in the future?
Luke King: We are always on the outlook for sectors/industries that have been disrupted, but who’s price has discounted the disruption. Consumer Staples have experienced the “Amazonization” and have lost their pricing power for branded goods. As technology driven continues to occur we expect to see continued disruption across multiple sectors.
ETF Strategy Summit: Thanks Luke. We look forward to hearing more of your thoughts at the ETF Strategy Summit October 15 - 16 in Dallas.