Should You Buy the High-Fee LSAT ETF Despite Its Costs?

The LeaderShares AlphaFactor Tactical Focused ETF (LSAT) stands out in the ETF universe not just for its high expense ratio of 0.99% but also for its unique blend of active, factor-based investing and tactical risk management. As investors weigh the cost-benefit of this fund, the question arises: Does LSAT's strategic approach and dividend yield justify its fees, or is it overpriced for lackluster performance? Let's dissect its value proposition.

The Tactical Edge: Strategy vs. Cost

LSAT's active methodology hinges on quantitative factors like net share count reduction, free cash flow growth, dividend yield, volatility, and debt/asset ratios. This approach targets U.S. equities with a minimum $1 billion market cap, aiming to balance growth and value. Its multi-factor risk overlay is its differentiator: during high-risk periods, it shifts up to 98% of assets into cash or government bonds, a defensive move that could shield investors during market downturns.

Yet, this flexibility comes at a cost. With an expense ratio of 0.99%, LSAT charges nearly double the average 0.44% fee for U.S. equity ETFs. To justify this, its strategy must deliver risk-adjusted returns superior to passive benchmarks.

Performance: A Mixed Bag of Growth and Volatility

Over the past three years, LSAT's returns have been uneven. It delivered 13.64% in 2023 and 18.16% in 2024, outpacing its mid-cap value peers in volatile markets. However, its year-to-date 2025 return of -1.80% highlights sensitivity to recent market headwinds. The trailing 12-month return (as of June 2025) stands at 3.89%, translating to a 3-year CAGR of 8.69%—respectable but far below the S&P 500's 17.46% CAGR over the same period.

The fund's 98.2% cash allocation as of June 2025 underscores its conservative stance, which may explain underperformance in rising markets but could protect capital during declines. Its dividend yield of 1.33% adds modest income, though dividends have declined (-24.6% CAGR over three years), signaling reliance on capital appreciation rather than payouts.

Cost-Benefit Analysis: When Does the Fee Pay Off?

To justify its fees, LSAT must offer risk mitigation that offsets its expense disadvantage. For instance, if it outperforms during market corrections, the cost could be worthwhile. Consider its 2024 outperformance: it gained 18.16% while the S&P 500 (SPY) returned 13.43%. Conversely, its 2025 YTD underperformance (-1.80% vs. SPY's +0.62%) suggests it struggles in bull markets.

Investors must weigh:
- Risk tolerance: LSAT's defensive tilt suits investors prioritizing capital preservation over high growth.
- Cost drag: Over 10 years, its 0.99% fee would erode $9,900 from a $100,000 investment—significant if returns don't compensate.
- Active management: A 107% portfolio turnover rate implies frequent trading, which may incur taxes and transaction costs.

Risks to Consider

• Cash-heavy portfolio: While defensive, high cash allocations limit growth potential in rising markets.
• Underperformance vs. benchmarks: LSAT's 3-year CAGR lags peers, raising questions about its active edge.
• Dividend decline: Falling payouts reduce its appeal for income-focused investors.

Final Verdict: A Niche Play for Defensive Investors

LSAT is not a core holding for aggressive growth portfolios. Its high fees and cash-heavy strategy make it a satellite investment for risk-averse investors willing to pay for downside protection. Those prioritizing capital preservation in volatile markets—especially with an eye on recession risks—might find its tactical shifts valuable.

However, for most investors, lower-cost alternatives like COWZ (1.09% 3-year return but 0.35% fees) or SPY (17.46% CAGR at 0.09% fees) offer better value. LSAT's value hinges on its ability to deliver consistent risk-adjusted returns, a challenge given its mixed track record.

Bottom Line: LSAT's tactical approach is its strongest selling point, but its high fees and uneven performance require careful consideration. Use it selectively as a defensive tool, and pair it with cheaper, growth-oriented ETFs for balanced exposure.