Emles Advisors LLC is a relatively new asset management firm with a half-dozen niche-targeted exchange-traded funds that track in-house indexes, including two products that debuted Monday. It’s also run by a CEO who launched the first index tied to master limited partnerships, co-founded a Hollywood film production and distribution company, and is a big believer in the investment potential of beer.
Regarding ETFs, Emles’ newest products—the Emles Luxury Goods ETF (LUXE) and Emles Protective Allocation ETF (DEFN)—seemingly represent two different mindsets: The first hopes to cash in on the urge to splurge, while the latter embodies the desire to play defense when times get tough.
LUXE invests in companies tied to the consumption of luxury goods across a range of sectors including alcohol, apparel, athleisure, beauty, home, jewelry and vehicles. These companies get at least 50% of their revenue from the sales and consumption of luxury goods globally.
But that prompts the following question: What exactly constitutes “luxury”?
“There is no particular definition for it. It’s more of, ‘I know it when I see it,’” said Gabriel Hammond, co-founder and CEO of Emles Advisors. “Some are more intuitive, such as LVMH and Hermès.” Those are French luxury goods companies.
But Hammond and his team also put so-called aspirational brands such as Nike and Apple into the luxury category. Their reasoning is that while Nike sneakers and Apple phones seem like products for the masses, their expensive price points mean that many people who aspire to get them have to give up something in order to purchase these status brands.
In a nutshell, the LUXE fund is all about the consumer discretionary sector. It charges an expense ratio of 0.60%, which might lead some investors to opt for a cheaper offering such as the Consumer Discretionary Select Sector SPDR Fund (XLY) or Vanguard Consumer Discretionary ETF (VCR), which charge 0.13% and 0.10%, respectively.
The top holdings in the SPDR and Vanguard funds—which are the two largest in the consumer discretionary category—include plebeian companies such as Home Depot, McDonald’s, off-price retailer TJX Companies and Dollar General. Both funds count Nike as a top holding.
The LUXE fund’s top holdings include Tesla, Nike, Diageo, Estée Lauder, Daimler AG and Hermès.
The Emles Protective Allocation ETF is designed to provide strong returns during stable conditions and solid absolute returns in periods of market stress by providing exposure to securities thought to preserve capital and survive a long economic downturn.
Its index is weighted about 55% to corporate credit securities and roughly 35% to equity securities. The remaining 10% or so is spread across put options, commodities-linked futures contracts and Treasury Inflation-Protected Securities.
According to the prospectus, the corporate credit and equity securities in the index go through a proprietary scoring methodology that looks at the companies’ balance sheet strength, earnings cadence and debt paydown ability, among other factors. Put options, futures contracts and TIPS are viewed as defensive securities to dampen market stress.
“There’s no capped upside to the Protective Allocation ETF,” Hammond said. “There are other funds in the market where effectively you trade the downside protection for limited upside for a defined return.”
The fund’s expense ratio is 0.55%.
ETFs, Movies And Beer
Emles Advisors is a registered investment advisor firm founded last year by Hammond, who noted the company’s name is a coined term with no real meaning other than it struck him as a word that could stand out in people’s minds.
The same theory applied to the naming of Alerian, a company he formed in 2004 as an energy infrastructure data and analytics company. Alerian later created and launched the first real-time index of master limited partnerships. Hammond also founded SteelPath in 2004, an investment firm that focused on energy infrastructure. It originally was part of Alerian before it eventually spun out as its own entity.
SteelPath went on to launch the first MLP mutual fund and Alerian launched the first MLP-focused ETF. Hammond sold SteelPath’s mutual fund business to OppenheimerFunds Inc. in 2012 (it’s now part of Invesco), and he sold Alerian to a private equity group in 2018.
Hammond had a noncompete agreement with OppenheimerFunds after he sold SteelPath, and he used that time to collaborate with his brother Daniel to start Broad Green Pictures, an independent film production and distribution company in Los Angeles.
According to published reports, the company acquired notable films including A Walk In The Woods with Robert Redford and The Infiltrator. But it also had a lot of misses, and Broad Green Pictures stopped distributing movies in 2018.
Gabriel Hammond said he is no longer involved in the film business, but he is enthusiastically involved in the beer business. That includes both his personal ownership stake in a private beer distributor business in Pennsylvania, and via a private fund offered by Emles Advisors that provides investors access to beverage and beer distributors throughout the U.S.
“It’s a unique and uncorrelated asset class,” Hammond said. On its website introducing the firm’s private funds, Emles Advisors posits that beverage and beer infrastructure assets offer high return potential and an attractive yield.
Emles Advisors also has a private fund focused on digital assets, as well as four ETFs that debuted in mid-October. The Emles Made in America ETF (AMER) invests in U.S. manufacturing companies that generate substantial revenue in the U.S.; the Emles Federal Contractors ETF (FEDX) holds companies whose revenues are mostly derived from federal contracts with the U.S. government; and the Emles @Home ETF (LIV) contains companies that aim to benefit from the shift toward more time spent at home.
All three funds have assets under management in the $10 million area.
The Emles Real Estate Credit ETF (REC), which invests in bonds issued by real estate companies, is the largest of the four funds with assets of $24 million.
Hammond thinks the REC fund has resonated with investors for two reasons: Its real estate focus provides portfolio diversification, and it’s a source of stable investment income.
“There’s a global thirst for yield that remains quite unsatiated that I think will continue,” Hammond said. “And from a credit quality perspective, the covenants these [real estate] companies have is much more well-defined. So from a risk-reward perspective, investors understand the value of how that yield is determined and how safe it is.”
