[This article appears in our March 2019 issue of ETF Report.]
In the exchange-traded fund world, most firms take an investment methodology from the institutional realm and bring it to the masses in ETF form.
Syntax Advisors launched an ETF in January to attract institutional and retail investors, and other index providers to their methodology. The Syntax Stratified LargeCap ETF (SSPY) takes the S&P 500 Index holdings and groups them into sectors and evenly weights them according to business risks.
Rory Riggs, chief executive officer for Syntax, says an ETF legitimizes its methodology three ways: It can be managed institutionally; investors can see the tracking error; and the fund’s performance is in real time.
“With a ticker up there, you can say, ‘this is real money.’ You can also see how it works versus market-cap weighting,” he said.
Source: State Street Global Advisors, data as of 12/31/2018
Although Syntax started in 2009, it spent most of those years developing the product. It first partnered with S&P to create an index, and then wrote papers on the methodology. Four years ago, it raised $40 million in a commingled fund, and it was this money that helped seed the ETF.
It’s the first time the Securities and Exchange Commission granted a firm permission to move commingled money into an ETF, Riggs says. The ETF started trading on Jan. 2, 2019, although the effective date is when they created the commingled funds in 2015.
Riggs says its methodology is to take the clinical-trial process and apply it to indexing.
“In clinical trials, you want to diversify populations to control for outcomes,” he explained. “What you do in a clinical trial, you can do exactly in stocks, but nobody thinks about it this way.”
Source: Syntax, data as of 12/21/2018