Daily ETF Watch: 7 ‘Smart Beta’ Launches

A seven-fund launch focused on minimum-volatility and quality ETFs puts sharp focus on ‘smart beta.’

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Reviewed by: Hung Tran
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Edited by: Hung Tran

A seven-fund launch focused on minimum-volatility and quality ETFs puts sharp focus on ‘smart beta.’

iShares and State Street Global Advisors today are collectively launching seven ETFs that focus on minimum volatility and quality stocks in the developed and emerging markets at a time when investors are fretting about where global growth will be as interest rates rise from their low post-crash levels.

The seven-fund rollout raises to 87 the number of ETFs that have launched this year. More than 1,580 ETFs now populate the universe of U.S.-listed ETFs, and total assets are now at a record $1.807 trillion, according to data compiled by ETF.com Analytics.

iShares is launching three minimum-volatility funds, while SSgA is launching four ETFs, three of them targeting the “quality” factor that seeks to isolate stocks of companies with consistently strong performance. These “smart beta” strategies are the latest examples of a growing trend in the world of ETFs. Assets in such strategies now total more than $200 billion.

The seven launches come at a time when China, the world’s second-largest economy, is slowing in 2014, after years of double-digit growth. China’s Finance Minister Lou Jiwei has publicly stated that a growth rate of 7.2 percent would be adequate, even if it does fall short of an official target of “about” 7.5 percent. The country is shifting its economy away from exports and investments to a more consumption-oriented economy.

Also, the Fed is continuing to taper its bond-buying program, signaling it is bullish on the current slow pace of the U.S. economic recovery, which many market observers say was thwarted in the first quarter due to severe winter weather conditions across much of the country.

iShares’ Min-Vol ETFs

iShares is hoping its latest trio of minimum volatility ETFs can help take some of the choppiness in equity markets off the table. The new funds include:

All three ETFs will look to gain exposure to a broad range of securities within their respective markets with lower-volatility characteristics relative to the broader markets.

JPMV has an expense ratio of 0.30 percent, or $30 for every $10,000 invested, while EUMV has an expense ratio of 0.25 percent. AXJV has an expense ratio of 0.35.

iShares’ launches were announced via an NYSE communique.

SSgA’s Quality ETFs

State Street Global Advisors today is launching four smart-beta ETFs, which will screen for value, low volatility and quality stocks in developed and emerging markets. The newly proposed ETFs include:

  • SPDR MSCI EAFE Quality Mix ETF (QEFA)
  • SPDR MSCI Emerging Markets Quality Mix ETF (QEMM)
  • SPDR MSCI World Quality Mix ETF (QWLD)

As well, SSgA is rolling out the SPDR Euro Stoxx Small Cap ETF (SMEZ) to focus on European small-cap securities at a time when developed European markets have not only been recovering from the region’s debt crisis, but are near all-time highs.

Associated fees for the ETFs were not yet made available.

 

New A-Shares Indexes

FTSE Group on June 17 is launching the FTSE Global R/QFII Index Series, a set of benchmarks that will provide issuers with flexible access to the China A-shares market—an arena already being targeted by a number of ETF issuers and regarded by analysts as the holy grail of emerging market investing.

FTSE’s new indexes can either be weighted by the aggregate approved qualified foreign institutional investor/renminbi qualified foreign institutional investor quota or weighted by free float and have no quota restriction, according to the firm.

Investors can also customize the indexes based on their own QFII/RQFII allocation. Market participants that don’t want A-shares in their global benchmarks can continue to use the FTSE Global Equity Index series, which will remain unchanged.

ETF issuers such as Market Vectors, Deutsche Bank and KraneShares have launched funds focused on mainland China securities as a way to give investors access to China’s move away from exports and investments to its next wave of growth: a consumer-oriented economy.

Mark Makepeace, chief executive officer of FTSE Group, told ETF.com that his company has been approached by a number of ETF issuers about how to include A-shares into emerging market portfolios.

Filing

Finally, Direxion is giving its Direxion S&P 500 RC Index Volatility Response Shares (VSPY | C-97) a facelift. Starting Aug. 1, VSPY will be renamed the Direxion S&P 500 Volatility Response Shares, reflecting a change to the underlying index.

Also, the ETF’s index will change from the S&P 500 Dynamic Rebalancing Risk Control Index to the S&P 500 Volatility Response Index, according to a regulatory filing. The new index, which is similar to the current one, is composed of equity securities of the S&P 500 Index and U.S. Treasury bills.

As volatility increases, the index’s exposure to stocks will decrease and its exposure to the cash component will increase, and vice versa.

 

Hung Tran is a former staff writer for etf.com.