This ETF is Bound to be Underwater

AdvisorShares is developing an ETF with Philippe Cousteau Jr., 31, the grandson of the late oceanography legend and scuba inventor, Jacques Cousteau. The Bethesda, Md.-based fund provider will donate at least half of the management fee from Global Echo ETF (NYSEArca: GIVE) to a foundation co-founded and run by Cousteau.

The Global Echo Foundation, a 501(c)(3), is funding social issues impacting women and children, promoting environmental conservation, and supporting social entrepreneurship.

In the press release, Noah Hamman, CEO and Founder of AdvisorShares, says, “This is a wonderful opportunity for us to provide an innovative solution to support the earth, the environment and the social challenges we face. We feel that partnering with Philippe Cousteau Jr. and his Foundation is the perfect opportunity for us to give a practical option for the average investor to make a difference with their investment capital — without having to give it away.”

Well, whoop-dee-do! Doesn’t this make you want to go out and invest every penny you own in this fund, despite the fact that it has no track record, no real benchmark for performance, and will likely sport a gigantic management fee? Not me.

The Global Echo ETF is being spun as an “absolute” return ETF that uses a “sustainable” investment mandate. These are nice gimmicky buzz-words, but what do they mean? Good luck finding out.

Absolute return is a encouraging sounding phrase, but it doesn’t mean much. It isn’t an asset class and it’s not a guarantee of positive return. It appears to be a catch-all for any investment strategy that doesn’t fit cleanly into anything else. Well, I have my own definition.

Absolute return means that a fund will earn a return, any return, positive or negative. It doesn’t matter what the return is because it’s not compared to a benchmark. So a fund company will say it’s a great return, no matter what it is.

What about a “sustainable” investment mandate? Again, it sounds cozy, but there’s no definition to be found. So, here’s my definition. All investment mandates are sustainable. You wouldn’t invest in a strategy if you thought it wasn’t sustainable, and neither would a mutual fund company. I can only think of two entities that have an “unsustainable” investment mandates: Bernie Madoff Securities and entitlement programs run by the U.S. government.

If you want to help Cousteau Jr. and his foundation, then forget about gimmicky absolute return funds with sustainable mandates and high fees.  Rather, I suggest investing in very low-cost ETFs such as the Vanguard Total Stock Market ETF (Ticker: VTI, ER 0.07%). Then, every year, take half the amount you save in management fees by not investing in high cost funds and send a check directly to Cousteau’s foundation or to the charity of your choice.

This idea will save you a fistful of money in management fees and you’ll probably have better investment performance. Plus, you’ll get a real tax deduction for your donation. (You wouldn’t get a tax benefit from the fund donating part of its management fee.) It’s a win, win, win strategy.