Former TCW fund manager Joseph Shaposhnik says it’s his mission to inspire people to believe that active management can “win again”—and he’s hoping to do so with the Rainwater Equity ETF (RW). The exchange-traded fund launched Wednesday from Shaposhnik’s new firm Rainwater Equity.
RW offers long-term, tax-efficient exposure to high-quality, recurring revenue businesses. It invests in global public companies with “durable, repeat-purchase business models and exceptional leadership, held in a concentrated, low-turnover portfolio,” according to a press release.
The expense ratio is 1.25%. Some of the fund’s top holdings include General Aerospace (GE), HEICO Corp. (HEI) and Microsoft Corp. (MSFT).
The growth of products like thematic, quant and leveraged ETFs is evidence that investors have “given up on active management,” Shaposhnik, RW’s portfolio manager, told etf.com. He believes the reason active management hasn’t worked is that most portfolio managers manage to the benchmark and build portfolios based on the assumption that they can understand how businesses will perform.
“Our basic belief is that most businesses can’t be predicted,” Shaposhnik said. “So we built a strategy that’s focused exclusively on investing in businesses that we think can be predicted—and those businesses are businesses that have recurring revenue business models.”
Recurring revenue business models typically have contracted revenue for two or three years or longer, which makes it easier for management teams to manage the businesses and easier for analysts and portfolio managers to evaluate and value the businesses, he added.
“What that generates is a stable, predictable business that the management team can operate and the investor can evaluate,” Shaposhnik said. “From the advisor’s perspective, what they get is a portfolio that will help them grow their client’s capital in a more predictable and consistent way with fewer negative surprises.”
RW was seeded by a cornerstone investment from Bill Miller, former chairman and CIO of Legg Mason Capital Management.
“Our goal is to build a fund that delivers superior returns for investment advisors and their clients for a long period of time,” Shaposhnik said. He added that the firm is planning to run just one fund and “stay focused on delivering the outcome that we believe investment advisors and their clients deserve.”
