IndexIQ Drafts Focused US Equities ETFs

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February 20, 2013
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The firm known for its hedge fund replication strategies is honing in on growth- and innovation-driven companies.

IndexIQ, the Rye Brook, N.Y.-based fund provider known in part for its hedge fund replication strategies, filed paperwork with U.S. regulators to bring to market two U.S. equity ETFs that look to cherry-pick prospective growth- and innovation-driven companies.

The IQ Fastest Growing Companies ETF, tracking a proprietary index, will invest in 50 high-growth U.S. companies as measured by sales, net income and cash flow growth as well as total return.

The portfolio is designed to serve up exposure to companies that have historically delivered solid growth rates across multiple financial factors, the filing said.

The IQ Innovation Leaders ETF, also tracking a rules-based proprietary benchmark, will invest in 100 U.S. companies deemed “highly innovative.” These innovation-related factors include sales growth, research and development expense and assets, retained earnings, capital expenditures and intangible assets.

The fund sets out to hone in on domestic companies that have reached high levels of sales and have consistently reinvested into their own businesses to drive future sales and earnings growth, according to the filing.

The strategies attempt to serve up focused exposure to pockets of the U.S. equities universe at a time when investors are adding risk exposure to their portfolios through equities. Last week alone, U.S. equities ETFs attracted net inflows of more than $870 million, with international equities gathering twice that amount, according to data compiled by IndexUniverse.

IndexIQ already sponsors 13 ETFs—such as the inflation-combating IQ Real Return ETF (NYSEArca: CPI) and the market’s first hedge fund ETF “QAI”—with combined assets of $664 million, making it the 24th-largest ETF provider in the country.

Making The Cut

To be eligible for inclusion in the IQ Fastest Growing Companies ETF, a company needs to be U.S.-listed and domiciled, be ranked within the top 500 largest U.S. companies by sales, have a minimum market capitalization of $1.5 billion, and meet minimum trading liquidity requirements, the filing said.

Securities are selected annually, with their weightings rebalanced once a year. As of Dec. 31, companies included in the underlying index had market capitalization ranging from $1.5 billion to $580 billion.

Similarly, companies comprising the IQ Innovation Leaders ETF must be U.S.-based and listed. They also need to have a market capitalization of at least $300 million and meet trading liquidity requirements.

The portfolio and underlying index are rebalanced annually.

No tickers or fees were disclosed in the filing.

 

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