Leatherback launches with long/short yield ETF

Michael Winter, Leatherback

Former hedge fund manager, Michael Winter, has seized the opportunities created by the arrival of the ETF rule with the launch of Leatherback Asset Management and his first ETF, the Leatherback Long/Short Alternative Yield ETF (LBAY).

Winter, who has had a 20-year career in hedge funds and mutual funds, has launched an actively managed alternative yield strategy, designed to provide a cost-effective, liquid, and tax efficient means for investors to add a high-quality allocation with targeted monthly distributions to their respective portfolios.

LBAY holds long positions in equity securities and other publicly traded instruments that appear well-positioned to seek attractive yields to shareholders, while building a short book from ‘idiosyncratic opportunities where a security’s price may be poised to decline’.

In addition, the fund may write covered calls when Leatherback believes call premiums are attractive relative to the price of the underlying securities.

LBAY trades on the NYSE and has a management fee of 0.95 per cent and a total annual fund operating expense of 1.09 per cent.

“It’s a fascinating and interesting time to do what we are doing,” Winter says. He started his career in investment with Putnam Investments in 2000 at the top of the dot com bubble. 2007 saw him joining Otter Creek which now offers a long/short liquid alternatives mutual fund, an experience he describes as: ‘Very different with very dedicated short books and a defined macro thesis surrounding financial bubbles.”

Winter worked across the capital markets utilising options, bonds, convertible bonds.

“I saw how alternative strategies could be packaged in a 40 Act mutual fund wrapper,” Winter says.  His connection at Tidal ETF Services introduced him to the idea of ETFs and he decided to launch an ETF.

“I am excited about offering a concentrated fundamental active product which is not available to the masses, packaged into an ETF which is far superior than a mutual fund with all the tax efficiencies available. is very inters ting to me

“I believe the secular tailwind of assets under management gathering is going to gather momentum due to the 6c-11 rule which allows boutiques like mine to launch in a cost-effective way,” he says.

The new fund is one hundred per cent transparent, he says. “I have a strong opinion that the beauty of the ETF wrapper, the reason the popularity is there, is that investors genuinely love the transparency. There is no investor out there saying: ‘let’s make this ETF more opaque’.”

Winter says that he is excited to offer investors a product that has not been available to investors, charging under 1 per cent, and offering intra-day liquidity with holdings visible at the end of every day. “I want people to ask us why we are short this company or long this company,” he says. “It opens up the debate and more data points to form an opinion.”

Winter’s mission is to be a premier active alternatives ETF manager and has another product on the blocks, waiting to launch. 

“We wanted to focus on the yield product first,” he says. “The first product is long/short but targets a monthly distribution as investors are starved of income and it’s become a riskier endeavour to find income. You are seeing this chase for yield – the investor wants a capital appreciation vehicle, so an equity like return but also needs income.”

The ETF is invested in a universe of highly liquid securities, but hopes to pay out a monthly distribution of at least double the S&P 500, which is currently running at 1.7 per cent a month.

“Our long book will be 130 per cent invested,” Winter explains, with 100 per cent invested in high shareholder yielding equities. He differentiates these from dividend paying stocks, as he wants them to have all the available options such as paying down debt or buying back stock. The companies concerned tend to be larger stocks. On top of that is the covered calls part of the portfolio, designed to add an extra layer of income.

The remaining 30 per cent bucket is invested in opportunistic income producing securities, bonds, convertibles, discounted closed end funds and MLPs. The short book is equal weighted as Winter feels that this is the objective way to position the short book, with the aim of finding more shorts with higher beta than on the long side in the hope that if the market goes down, it will dampen the numbers.

The portfolio sounds complicated and a different sell for many advisers, but Winter summarises it as: “Long 40 securities and short 20 securities.”

“We are being disruptive, not just another plain vanilla but doing some unique and different,” Winter says. “There will be a lot of hitting the virtual pavement.”

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