Daily ETF Watch: New Smart Beta Flavors

April 19, 2016

The ETF market is welcoming two new smart-beta equity funds to the mix today that attempt to offer novel market access—one by focusing on optimized diversification, the other by listening to chatter in social media outlets.

The concept here is to have a portfolio, tracking a Wilshire index, that focuses on stocks that have lower correlation to a cap-weighted large-cap index. The securities are weighted based on correlation and risk, and ultimately the ETF is designed to deliver better risk-adjusted returns than a simple allocation to a large-cap market-cap-weighted approach.

OPD owns 100-120 holdings that are rebalanced quarterly.

“Combining differentiated return streams from lowly correlated stocks may provide the potential for attractive risk-adjusted returns,” William Belden, Guggenheim’s head of ETF business development, said in a press release.

OPD’s benchmark is heavily tilted to consumer-related stocks. Roughly 25% of the mix is tied to consumer staples, and 20% is allocated to consumer discretionary names. Financials are the third-largest sector allocation, at 14%.

Guggenheim has a long track record with smart-beta approaches, and today manages some $27.5 billion in U.S.-listed ETF assets, making it the eighth-biggest issuer in the country.

The fund tracks an index that selects and ranks companies based on positive sentiment about them, and on volume of chatter about them in social media.

The information is gathered from a variety of types of venues, including blogs, video-sharing sites, wikis and podcasts, among others. Sites such as Twitter, Facebook, LinkedIn, YouTube, Flickr and Reddit are also canvassed.

Ultimately, the index covers the 25 eligible companies with the most positive sentiment, as determined by the model, and weights them according to a scoring methodology.

Companies must meet liquidity requirements, be listed on a U.S. exchange, and have a market capitalization of at least $5 billion to be considered for inclusion, according to the prospectus. The index is rebalanced and its component list is reconstituted on a monthly basis.

Deutsche Adds EM Multifactor ETF

Following the launch of its developed-market and U.S. multifactor ETFs late last year, Deutsche Asset Management has rolled out the Deutsche X-trackers FTSE Emerging Comprehensive Factor ETF (DEMG).

The new fund, like the Deutsche X-trackers Russell 1000 Comprehensive Factor ETF (DEUS) and the Deutsche X-trackers FTSE Developed ex US Comprehensive Factor ETF (DEEF), tracks an index provided by FTSE Russell that targets five factors: value, momentum, size, volatility and quality.

DEMG will launch on the NYSE Arca and come with an expense ratio of 0.50%.

Global X Debuts Catholic Values Fund
Global X has made a foray into the socially responsible space with the launch of the Global X S&P 500 Catholic Values ETF (CATH). The fund essentially tracks a screened version of the S&P 500 that includes companies that are acceptable under social responsibility standards set forth by the United States Conference of Catholic Bishops.

The fund is reweighted so that its sector weights match those of the S&P 500. The prospectus notes that as of April 18, the underlying index had 469 components.

The fund will launch on Nasdaq and come with an expense ratio of 0.29%.

Contact Cinthia Murphy at [email protected] and Heather Bell at [email protected].

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