Daily ETF Watch: DB Debuts Smart Beta Funds

November 24, 2015

Today Deutsche Bank launched a pair of funds that represent its first moves into the multifactor smart-beta ETF space. The Deutsche X-trackers FTSE Developed ex US Enhanced Beta ETF (DEEF) and Deutsche X-trackers Russell 1000 Enhanced Beta ETF (DEUS) track benchmarks derived from the FTSE Developed ex US Index and the Russell 1000 Index.

The underlying benchmarks are created by screening their parent indexes for companies with meaningful exposure to the value, momentum, quality, low volatility and size factors. Index holdings are weighted by their exposure to all five factors.

DEEF’s index included 1,177 components from 23 developed markets as of Sept. 30, while DEUS’s index included 834 U.S. securitites.

DEEF comes with an expense ratio of 0.35%, while DEUS charges 0.25%.

FlexShares Debuts Real Assets ETF

The FlexShares Real Assets Allocation Index Fund (ASET) rolled out today. The ETF is an index-based fund of funds that invests primarily in other FlexShares ETFs.

Those funds ASET invests in include the FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR | B-85), the FlexShares Global Quality Real Estate Index Fund (GQRE | C-80) and the FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA | B-56).

ASET’s index seeks to achieve optimal exposure to the three underlying ETFs while limiting volatility. On Oct. 30, the largest weighting in the index went to NFRA at 50.2%, with GQRE weighted at 39.9% and GUNR at 9.9%.

ASET comes with an expense ratio of 0.57%.

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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