BEST NEW SMART BETA OR FACTOR ETF
WINNER: GraniteShares XOUT U.S. Large Cap ETF (XOUT)
GraniteShares, a firm known primarily for its low-cost commodity ETFs, has branched out in new directions, most recently with the launch of the GraniteShares XOUT U.S. Large Cap ETF (XOUT). The fund uses a smart beta approach that focuses on excluding companies deemed likely to underperform rather than on picking outperformers.
The methodology evaluates the largest 500 U.S. stocks based on revenue growth, hiring growth, capital deployment, share repurchases, profitability, earnings sentiment and management performance, as well as deposit growth for banks. Companies with scores ranking below the median quintile are excluded. Selected components are weighted by market capitalization and reconstituted on a quarterly schedule.
The strategy seems to be working—at least initially. The fund has outperformed the SPDR S&P 500 ETF Trust (SPY) during 2020, and has a dramatically different sector distribution from SPY, with a significantly larger technology weighting. That overweight in the high-flying technology sector has likely driven much of the fund’s outperformance.
With its focus on avoiding losers rather than picking winners, XOUT takes a unique angle on the smart beta concept. And so far, that seems to be a good one.
BEST NEW ACTIVE ETF
WINNER: Avantis U.S. Equity ETF (AVUS)
It’s hard to be too excited about an actively managed U.S. equity ETF given the unflattering historical data of underperformance this segment of active managers faces relative to benchmarks year after year. It’s also tough to accept that track record for what’s typically heftier fees than those of passive equity funds. But the Avantis U.S. Equity ETF (AVUS) tackled those head winds right out of gate, exciting active investors, who quickly poured $160 million into the fund shortly after launch.
The secret to AVUS’ immediate traction, in part, is its issuer’s commitment to making active management competitively priced. American Century Investments (ACI) is offering its active managers’ expertise for 0.15% in expense ratio—or $15 per $10,000 invested in AVUS.
The fund also offers an interesting multifactor approach to owning U.S. equities, looking for highly profitable names that also offer good value. To that end, the portfolio manager looks at the broad U.S. equity universe, and tilts toward high-return, high-profit companies by focusing on those of smaller capitalizations, as well as value names.
AVUS also underweights larger cap stocks that have lower profitability and higher price tags. This is an active ETF that came to disrupt the segment by bringing ACI’s well-established expertise for a low bargain price.