Daily ETF Watch: More 'Smart Beta' Launches

July 02, 2014

Compass EMP, a Tennessee-based mutual fund firm, today is launching its first ETFs, three "smart beta" funds that seek to isolate lower-volatility stocks from a broader universe of U.S. equities.

Additionally, the British bank Barclays Plc is on the verge of launching an inverse Treasurys ETN with an index that delivers the returns of an array of short positions on U.S. Treasurys across the yield curve.

Compass EMP today is launching its first ETFs—a trio of "smart beta" funds that target lower-volatility U.S. stocks based on indexes the firm created.

The self-indexing as well as the volatility-targeting indexes place Compass EMP at the center of two popular trends coursing through an ETF industry that's growing rapidly. The launches today bring the total number of 2014 launches to 101 through June 26, compared with 68 for the same period last year. In total, there are currently 1,615 ETFs managing a record high of more than $1.871 trillion in assets.

The new funds, their tickers and net expense ratios are:

  • Compass EMP U.S. EQ Income 100 Enhanced Volatility Weighted Fund (CDC), 0.68 percent, or $68 for every $10,000 invested
  • Compass EMP U.S. 500 Volatility Weighted Index ETF (CFA), 0.58 percent
  • Compass EMP U.S. 500 Enhanced Volatility Weighted Index ETF (CFO), 0.68 percent

The funds' portfolios will generally consist of the common stocks of the largest U.S. companies by market capitalization with consistent positive earnings (at least its four most recent quarters) and weighted based on the volatility of each stock, according to the regulatory filing. Stocks with lower volatility receive a higher weighting, and stocks with higher volatility receive a lower weighting.

 

Near Launch

The Barclays inverse Treasurys ETN is the latest exchange-traded product designed to offer investors protection from a sell-off in the bond market. It's true that yields on the 10-year Treasury note have actually fallen this year to around 2.56 percent from 3 percent at the end of 2013, but investors remain anxious about the post-crash doldrums giving way to higher yields, and Barclays is offering up a solution.

The Barclays Inverse US Treasury Aggregate Exchange Traded Note (TAPR) will employ short positions across the two-year, five-year, 10-year, long-bond and ultra-long U.S. Treasury futures contracts, according to a regulatory filing. Prices on existing bonds fall when yields rise.

According to the prospectus, the note appears to have a fee of $43 for every $10,000 invested.

"Because the daily investor fee is calculated and subtracted from the closing indicative note value on a daily basis, the net effect of the daily investor fee accumulates over time and is subtracted at the rate of approximately 0.43 percent per year," as noted in the prospectus.

The note's launch is currently postponed until further notice according to a Nasdaq communique.

 

Calamos 'Smart Beta' Plans

Another newcomer to the ETF space, Calamos ETF Trust, a Naperville, Ill. money manager, has updated regulatory paperwork to launch its own brand of smart-beta funds in an active ETF wrapper.

Calamos, a mutual fund shop with a reputation in convertible securities, is one of many firms lining up in the hopes of offering up active ETF wrappers even as the ETF industry continues to grow.

Calamos' first planned ETF, called the Calamos Focus Growth ETF (CFGE), will invest primarily in growth-oriented companies with market capitalizations of more than $1 billion that the firm believes offer the best opportunities for growth, according to the regulatory filing.

The fund may also invest up to 25 percent of its assets in foreign securities, and may invest in equity securities issued by other investment companies, including money market funds. It has a net expense ratio of 0.90 percent, or $90 for every $10,000 invested.

 

 

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