New Smart Beta Emerging Market ETF

October 27, 2017

VictoryShares, the ETF issuer known for its volatility-weighted strategies, listed on the Nasdaq its second emerging-market-focused ETF this week.

The Emerging Market High Div Volatility Wtd ETF (CEY) is a portfolio of 100 high-dividend-yielding emerging market stocks that have shown positive earnings, weighted by their volatility.

According to the company, this smart-beta approach to emerging markets is designed to outperform a traditional market-cap strategy by avoiding concentration in the largest-cap names and highest-yielding sectors.

“Volatility weighting, very specifically, is not targeting low volatility as a selection mechanism,” Mannik Dhillon, president of VictoryShares, said in a recent interview. “It’s a weighting mechanism to better diversify an index—to address the concentration that occurs in cap-weighted indices where a few stocks dominate the performance and the risk profile of the index.”

Top Exposures

CEY tracks the CEMP Emerging Market High Dividend 100 Volatility Weighted Index, and comes to market with Taiwan, China, Thailand and Russia as the fund’s top country exposures, representing 50% of the overall mix. Financials is the largest sector allocation, at about 25%. The portfolio will be rebalanced twice a year.

CEY comes with an expense ratio of 0.50%, landing it somewhere in the middle in terms of cost among the 200 emerging market ETFs on the market today. The cheapest is a plain-vanilla market-cap fund, the SPDR Portfolio Emerging Markets ETF (SPEM), at 0.11%.

VictoryShares has roughly $2 billion in assets under management across 14 ETFs including CEY, 12 of which are smart-beta funds that rely on the volatility-weighted approach. The firm’s biggest fund is the VictoryShares US 500 Enhanced Volatility Wtd Index ETF (CFO), with $560 million in assets.

Year-to-date, CFO has rallied neck-and-neck with the SPDR S&P 500 Trust (SPY).

http://stockcharts.com/c-sc/sc?s=CFO&compare=SPY&id=t41471945552&r=1509038569288

Chart courtesy of StockCharts.com

Contact Cinthia Murphy at cmurphy@etf.com

 

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