ETF Watch: EquityCompass Funds Debut

April 11, 2017

Today First Trust launched two actively managed ETFs that are managed by EquityCompass on the NYSE Arca. The EquityCompass Risk Manager ETF (ERM) and EquityCompass Tactical Risk Manager ETF  (TERM) each carry an expense ratio of 0.65% and focus on risk management from the perspective that avoiding downside risk is a primary objective.

Both funds generally invest in the stocks of the S&P 100 and the five smallest stocks in each of the S&P 500’s 10 sectors based on market capitalization, excluding REITs. Both funds can also switch to cash or cash equivalents that total up to 100% of the portfolio when the manager determines that the U.S. equity market is unfavorable. This decision is made using fundamental and technical market indicators.

The key difference between the two funds is that TERM has an added ability to invest in inverse ETFs during unfavorable periods in equity markets. 

Newcomer Plans Politically Focused Funds

A new firm, EventShares, has filed for four actively managed ETFs that look to capitalize on political developments in the U.S. and Europe by taking long and short positions in securities affected by those changes. The proposed ETFs include the following:

Republican Policies Fund

This fund will seek to take long positions in companies that will benefit from the current policies put forth by the Republican National Committee and Republican party leaders as well as forecasted policies. The fund’s managers rank industry groups based on how they will be affected by the policies, and then look at individual securities within each industry group, evaluating them based on fundamental valuation characteristics and other factors. The fund then takes long positions in securities that are likely to be affected favorably by Republican policies, and short positions in those likely to see an unfavorable effect.    

Democratic Policies Fund

This fund will use the same strategy as that mentioned above, but with policies put forth by the Democratic National Committee and Democratic party leaders.

U.S. Tax Reform Fund

This fund similarly uses current tax reform policies and proposed bills to determine whether to take long or short positions in individual securities. The analysis considers elements such as credits, deductions and income sourcing rules. The ETF’s managers will use such information as official statements, media interviews, campaign and policy speeches, proposed legislative and executive bills, and legislative staff updates to determine tax reform themes, the prospectus indicated.

European Union Breakup Fund

This fund will seek “capital appreciation during periods when the European Union is becoming less centralized due to member countries considering abandonment of the euro or withdrawal from the union,” the document said. It will take into account the effects of regulations affecting member interaction and trade, member abandonment or withdrawal, and dissolution of the bloc at political or economic levels. Like the other three funds, it will take long positions in securities likely to benefit from the developments and short positions in those likely to be damaged by the deterioration of the European Union. Unlike the other three funds, it will primarily invest in European securities.

The filing neither included expense ratios or tickers, nor did it mention a listing exchange.

Contact Heather Bell at [email protected].

 

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