What Is AdvisorShares and How Do Their ETFs Work?

The investment landscape has significantly evolved, with exchange-traded funds (ETFs) emerging as a prominent investment vehicle. These funds offer investors diversified exposure to various asset classes with the flexibility of trading like individual stocks. Initially, ETFs primarily tracked market indexes, providing a passive investment approach.

A growing interest has developed in actively managed strategies within the ETF structure. This shift allows professional money managers to make dynamic investment decisions rather than simply replicating an index. The combination of active management with the inherent benefits of the ETF wrapper has reshaped how many investors approach portfolio construction.

Understanding AdvisorShares as a Company

AdvisorShares is an investment management firm based in Bethesda, Maryland, specializing in actively managed exchange-traded funds. Established in 2006, the firm operates through the AdvisorShares Trust. Its core business model focuses on bringing sophisticated, actively managed strategies to the broader investment market within the accessible ETF format.

The firm’s niche involves partnering with external financial advisors and money managers. These collaborations allow AdvisorShares to package established investment strategies into ETFs, making them available to a wider range of investors. This approach aims to provide access to institutional-quality management that might otherwise be difficult for individual investors to obtain.

AdvisorShares’ mission centers on innovation, transparency, and education within the financial industry. They strive to enhance existing ETF products with features that investors seek. This commitment extends to providing educational support to help investors and financial advisors understand the nuances of actively managed ETFs and their underlying investment strategies.

The firm emphasizes offering a diversified selection of investment strategies to facilitate portfolio diversification. By working with various managers and investment approaches, AdvisorShares aims to meet diverse investor needs.

Structure and Management of AdvisorShares ETFs

AdvisorShares’ ETFs are distinct due to their actively managed nature, meaning a dedicated portfolio manager or team makes ongoing decisions about the fund’s holdings. Unlike passively managed ETFs that track a specific index, these managers actively research and select securities with the goal of outperforming a benchmark or achieving specific investment objectives. This dynamic approach allows for adjustments in response to changing market conditions.

The operational framework for most actively managed ETFs, including those from AdvisorShares, involves daily transparency of portfolio holdings. Under Securities and Exchange Commission (SEC) Rule 6c-11, ETFs relying on this rule are required to disclose their full portfolio holdings on their website each business day before market open. This requirement provides investors with insight into the fund’s current composition.

This daily transparency supports the ETF’s liquidity mechanism, which involves authorized participants (APs) and market makers. APs facilitate the creation and redemption process, where large blocks of ETF shares, known as creation units, are exchanged for the underlying securities or cash. This process helps ensure that the ETF’s market price remains closely aligned with its net asset value (NAV) throughout the trading day.

Market makers provide continuous buy and sell quotes for ETF shares on exchanges, contributing to the fund’s on-screen liquidity. They profit from the bid-ask spread and use the creation and redemption mechanism to arbitrage away significant price discrepancies between the ETF shares and their underlying holdings. This interplay helps maintain efficient trading and price integrity for investors.

Accessing AdvisorShares Products

Investors can access AdvisorShares ETFs through a standard brokerage account. These ETFs trade on major stock exchanges, such as the NYSE Arca, throughout the regular trading day.

When placing an order, investors have options such as market orders or limit orders. A market order instructs the broker to buy or sell the ETF at the best available price immediately, prioritizing speed of execution. Conversely, a limit order allows investors to specify a maximum price they are willing to pay or a minimum price they are willing to receive, providing more control over the execution price.

The trading hours for AdvisorShares ETFs align with the standard stock market hours, typically from 9:30 AM to 4:00 PM Eastern Time on weekdays. While some after-hours trading may occur, the bid-ask spread can be wider, and liquidity might be lower during these periods. Investors should be aware of these dynamics when trading outside regular hours.

Investors can buy as few as one share. Brokerage firms may charge commissions for ETF trades.