The ETF industry is closing out the year with two launches on the last day of trading, bringing the total number of launches for 2017 to 272. Both of the funds focus on global equities and include roughly 100 holdings, but the similarities really end there.
Arrow Adds Dorsey Wright ETF
Arrow is adding another ETF based on Dorsey Wright’s relative strength strategy to its lineup. The Arrow DWA Country Rotation ETF (DWCR) tracks the Dorsey Wright Country and Stock Momentum Index.
The fund comes with an expense ratio of 0.75% and lists on the Nasdaq stock exchange.
“It’s a country rotation model, but the definitive universe is not using ETFs. We’re using the Nasdaq country investable universe, which is about 41 countries. We’re looking for strength among those 41 countries,” said Joseph Barrato, Arrow Funds’ CEO and director of investment strategies. He points out that unlike many Dorsey Wright relative-strength strategies that are used by ETF issuers, DWCR is not an ETF-of-ETFs but invests in individual equities.
DWCR focuses on stocks from 41 developed non-U.S. and emerging equity markets that are showing strong momentum. It uses relative strength to select the top 10 markets every quarter and from there it selects the top individual securities in each identified market based on relative strength and equal weights them within their respective country baskets.
“We think this is a great complement to most international strategies that are cap-weighted, or even value-weighted strategies,” Barrato said.
He notes that his firm believes that after a 9-year run-up, it’s important for investors to diversify away from the U.S. equity market, pointing out that endowments such as those for Yale and Harvard have been allocating more weight to international equities than to domestic equities for the past couple of years.
The trouble, Barrato says, is that international stocks are highly correlated to domestic stocks. DWCR, however, currently has a correlation with the U.S. market of 50%, though that will likely change as the fund rebalances.
Disruptive Technologies In Focus
ALPS is the latest issuer to target companies on the cutting edge of technology with its launch today. The ALPS Disruptive Technologies ETF (DTEC) tracks an index that includes securities from the U.S. and other developed markets as well as from emerging markets.
DTEC comes with an expense ratio of 0.50% and lists on the Cboe. Cboe Global Markets is the parent company of ETF.com.
The fund’s index targets 10 thematic areas in the disruptive technologies space including healthcare innovation; internet of things; clean energy and smart grid; cloud computing; data and analytics; fintech; robotics and artificial intelligence; cybersecurity; 3D printing; and mobile payments, the prospectus said. Companies must meet size and liquidity requirements, and the methodology screens the stocks in each bucket using quantitative and qualitative criteria – primarily market capitalization and revenue sources.
“We believe the index effectively targets the immense potential offered by disruptive technologies over the coming years and decades,” said ALPS Head of ETFs Mike Aiken.
The fund has a pure-play aspect to it. Companies included in the index must generate at least 50% of their revenue from the theme they are classified under. From there, the methodology selects the top 10 stocks from each bucket based on market capitalization and equally weights them within the index.
The prospectus notes that the themes that the fund focuses on can shift to accommodate changes in the disruptive technologies landscape.
There is a handful of ETFs targeting disruptive innovation and exponential technologies, though none of them really align neatly with the coverage offered by DTEC.
ARK Investments’ actively managed ARK Web x.0 ETF (ARKW) is perhaps the best comparison. It covers things like the internet of things, cloud computing, digital currencies and wearable technology. The fund rolled out in 2014 and currently has $245 million in assets under management. ARKW has an expense ratio of 0.75%. It is up nearly 89% in 2017.
There’s also the $1.6 billion iShares Exponential Technologies ETF (XT), which charges an expense ratio of 0.47% and tracks an index from Morningstar. It covers many of the same areas as DTEC.
Contact Heather Bell at [email protected]