Within the past few business days, two firms have rolled out three funds, and in the case of both ETF providers, they were carving out new territory for themselves.
ETF Securities Embraces Equities
Commodity ETF provider ETF Securities launched its first two equity-focused funds on Tuesday, Jan. 20. The U.S.-listed launches are the first for the firm in nearly four years, and represent a marked departure from its physical- and futures-based commodity funds.
The ETFS Zacks Earnings Large-Cap U.S. Index Fund (ZLRG) and ETFS Zacks Earnings Small-Cap U.S. Index Fund (ZSML) both track indexes from Zacks Investment Research that are based on the benchmark provider’s proprietary analysis regarding earnings estimates and earnings quality.
The indexes use a two-tiered equal-weighting approach in which the highest-ranking stocks in terms of earnings estimates and quality are selected for the index and then equal-weighted within their respective sectors. The 16 sectors identified by Zacks are also equal-weighted within the indexes.
The large-cap index selects its 140 components from the 1,000 largest stocks in the Zacks universe, while the small-cap index selects its 180 components from the companies that rank between 1,001 and 3,000.
Both funds come with expense ratios of 0.66 percent.
WisdomTree offers some earnings-focused ETFs, but the approach is somewhat different. For example, the index of the large-cap Wisdom-Tree Earnings 500 Fund (EPS | A-94) selects the 500 largest companies in the broad WisdomTree Earnings Index, which only includes companies with positive earnings, and then weights the selected components by earnings. EPS has been around since 2007 and has accumulated $137 million in assets. It has an expense ratio of 0.28 percent, significantly less than that of ZLRG.
Meanwhile, the WisdomTree SmallCap Earnings ETF (EES | A-84) has more than $400 million in assets under management and carries an expense ratio of 0.38 percent. Its index methodology is similar to that of EPS, but it targets the smallest 25 percent of stocks in the broad index once the largest 500 components have been excluded.
QuantShares Launches Long/Short Fund
QuantShares, which has previously focused on “market neutral” ETFs targeting specific factors, rolled out the market’s first dividend-focused long/short fund on Jan. 16. The QuantShares Hedged Dividend Income Fund (DIVA) takes long positions in the market’s highest-dividend stocks and short positions in the lowest-dividend stocks, with monthly index rebalancing.
According to the QuantShares website, the main idea behind the fund is that it provides exposure to companies that pay stable or growing dividends, and hedges away risk by taking short positions in companies that pay low or unstable dividends. DIVA’s goal is to provide high yield and capital appreciation and offer a risk level on par with what would be expected for a corporate bond index, the site noted.
In aggregate, the underlying index is 100 percent long in a portfolio of 100 stocks, and 50 percent short in a portfolio that includes between 150 and 200 stock positions.
Perhaps the closest competitor would be the ProShares RAFI Long/Short ETF (RALS | D-82). It’s currently the only long/short ETF trading that takes its positions based on dividends; however, it also takes into account cash flow, sales and book value. It launched in 2010 and has roughly $70 million in assets under management.
DIVA has a net expense ratio of 0.99 percent, versus 0.95 percent for RALS.