Affinity ETF Uses Smart-Beta Approach
Regents Park, the firm that brought out the Anfield Capital Diversified Alternatives ETF (DALT) in September, has rolled out the Affinity World Leaders Equity ETF (WLDR). WLDR is advised by Regents Park and subadvised by Affinity Investment Advisers.
The fund has an expense ratio of 0.47% and lists on the Cboe exchange. Cboe Global Markets is the parent company of ETF.com.
WLDR tracks an index that covers 150-250 companies selected for their strong global footprint, earnings quality, improving fundamentals, price momentum and valuations. The fund pulls its components from the Thomson Reuters Global Developed Index, excluding Greece and South Korea. Its underlying index can include equities selected from up to 20 markets but as few as the U.S. and three other countries, according to the prospectus.
Companies are actually sorted into two buckets: the U.S. and non-U.S. Each one is assigned an “Affinity Score” using a proprietary methodology that relies on the previously mentioned evaluation criteria and how they correlate with the stock’s long-term performance. The methodology generally selects the top decile of companies based on their rankings and removes the companies that rank outside the top quartile from the index.
“[The methodology] is a combination of factors. Valuation is very important, but then we also look at changes in expectations. So we’re looking at positive changes in earnings and revenue estimates, earnings and revenue surprises,” said Gregory Lai, CEO of Affinity Investment Advisors.
“We don’t want to just buy cheap companies,” he added. “We want to buy cheap companies that have exhibited these positive fundamentals.”
The index is weighted based on a modified equal-weighting approach within each sector while aiming overall for overall neutral sector weightings. It also seeks to reflect the geographical distribution of the parent index.
Rebalanced and reconstituted twice a year, the underlying index had 171 components as of the end of Aug. 31.
Strategy Shares Launches 7HANDL Fund
White-label issuer Strategy Shares rolled out a multi-asset index-based ETF today that also incorporates leverage into its methodology. The Strategy Shares Nasdaq 7HANDL Index ETF (HNDL) lists on the Nasdaq and has an expense ratio of 0.96%.
The fund will track an index of the same name that splits its portfolio 50/50 between two buckets. The index will also incorporate a level of leverage that equates to 23% of the fund’s total portfolio.
In one bucket is an assortment of domestically focused equity and fixed-income ETFs that allocates 30% of its weight to equity funds and 70% to fixed-income funds.
The fixed-income sleeve is equally weighted among the three largest U.S. aggregate bond ETFs, while the core equity sleeve allocates 50% of its weight to an equal-weighted subportfolio of the three largest large-cap U.S. ETFs, and the other 50% to the largest ETF tracking the Nasdaq-100 Index.
The other bucket represents alternative assets and is referred to in the prospectus as the “Explore Portfolio.” It contains 12 asset categories that are each represented by a single ETF that is usually the largest in that particular space. Those ETFs are weighted in their portion of HNDL’s portfolio using a proprietary methodology that is subject to certain weighting constraints.
The prospectus describes the fund’s underlying index as “broadly diversified,” and says it is designed to provide high levels of monthly distributions to the tune of a 7% annual distribution rate while also offering a stable net asset value over time. The document also notes that the 7% distribution rate is not guaranteed. The fund will target risk levels that coincide roughly with the U.S. capital markets.
Rational Advisors serves as the fund’s advisor.