Daily ETF Watch: DB Debuts Smart Beta Funds

November 24, 2015

New Innovator Funds Filed

Academy Funds Trust, which launched the actively managed Innovator IBD 50 ETF (FFTY | C-29) earlier this year, has filed for two more ETFs. The Innovator IBD Small/Mid-Cap Leaders Fund and the Innovator IBD Mid/Large-Cap Leaders Fund will track indexes provided by Investor’s Business Daily.

The underlying indexes for both funds are designed to target leading growth companies scoring at least 90 out of a total of 99 within IBD’s fundamental and technical rating system. The benchmarks are equally weighted and rebalanced on a monthly basis, the prospectus said.

It’s not clear from the prospectus where IBD sets the cutoff between the small- and midcap segments or between the mid- and large-cap segments. However, eligible components for the indexes must have market capitalizations of at least $5 billion.

The ETFs’ holdings are expected to be primarily U.S. companies, but U.S.-listed securities of foreign companies can also be included in the indexes.

Most importantly, the funds can switch to a 50% cash allocation should a “sell” signal be triggered by technical indicators of a “severely deteriorating market” that is more dramatic than a run-of-the-mill correction. The prospectus says such events are expected to be rare, but that the cash position could be held for an extended amount of time once triggered. The mechanism is designed to control the risk levels of the funds.

FFTY was launched in April of this year and has accumulated $70 million in assets under management. The actively managed fund essentially reweights the companies of the IBD 50 Index, another growth-focused benchmark, using an active strategy.

Both of the funds in the filing are slated to list on the NYSE Arca with expense ratios of 0.80%, which is the same as the fee charged by FFTY. The filing did not include tickers for either fund.

Contact Heather Bell at [email protected].

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