Daily ETF Watch: New Firm Launches 1st Fund

Compass EMP, a Brentwood, Tenn.-based mutual fund shop, on Wednesday, July 2 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. In fact, Charles Schwab said separately this week that ETF use is steadily spreading to self-directed investors, another clear sign that the exchange-traded fund is moving well past its origins as a highly liquid tool favored by institutions.

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.

Delay For Eaton Vance

The Securities and Exchange Commission has put the brakes on Eaton Vance’s proposed nontransparent active exchange-traded funds, dealing a blow to the firm and other mutual fund firms looking to enter the ETF space via non-transparent, active funds.

These mutual fund sponsors want to gain access to the fast-growing ETF market, which currently manages a record $1.860 trillion in assets, but argue that the current daily disclosure requirements for ETFs put their proprietary strategies at risk of being front-run and/or copied by competitors.

According to a June 9 notice, the SEC has instituted formal proceedings on the request to allow Nasdaq to list Eaton Vance’s proposed “exchange traded managed funds,” or ETMFs, on its exchange. The Nasdaq argued that it needs more time to carefully consider, “among other matters, the ability of brokers, dealers, investors and other market participants to fully understand [net asset value]-based trading.”

The notice was first reported by Ignites.

New Commodity Index Series

S&P Dow Jones Indices (SPDJI) has launched the Dow Jones Commodity Index designed to serve as a broad-market commodity index.

The new index includes 23 of the commodities included in the broad, world-production-weighted S&P GSCI, but it weights each of the three major sectors—energy; metals; agriculture and livestock—equally and is rebalanced quarterly.

The Dow Jones index-family launch is related to the fact that UBS ended its commodity-indexing partnership with Dow Jones, and penned an indexing agreement with Bloomberg LP.

The index series, formerly known as UBS-Dow Jones, will now carry the Bloomberg name.

Bloomberg is in the early phase of expanding its presence in the growing world of indexing.

Schwab Study On ETFs

As noted above, Charles Schwab’s institutional latest SDBA Indicators Report found that retirement plan participants allocated 14 percent of their total portfolios to exchange-traded funds in the first quarter of 2014, an increase of 2 percentage points compared with the same period a year ago.

According to the Schwab data, ETFs were the only investment category to see an increase in net asset allocation year-over-year. Asset allocations in mutual funds held steady in the quarter, comprising 41 percent of overall portfolio allocation.

Allocations in individual equities remained unchanged at 25 percent, while SDBA participants decreased their cash positions to 18 percent.

Schwab produces the report quarterly, including a separately labeled annual version of the study.