Daily ETF Watch: Volatility Weighted Funds

Compass EMP, a Brentwood, Tennessee-based newcomer to the exchange-traded fund industry, has filed for seven additional funds that will use the volatility-weighting methodology that underlies its six existing ETFs.

The list, including their expense ratios, includes three ETFs that are simply weighted by volatility:

• Compass EMP US Small Cap 500 Volatility Weighted Index ETF, 0.35 percent
• Compass EMP International 500 Volatility Weighted Index ETF, 0.45 percent
• Compass EMP Emerging Market 500 Volatility Weighted Index ETF, 0.50 percent

It also includes four “High Dividend” ETFs that combine volatility weighting with a high-dividend focus:

• Compass EMP International High Dividend 100 Volatility Weighted Index ETF, 0.45 percent
• Compass EMP Emerging Market High Dividend 100 Volatility Weighted Index ETF,
• Compass EMP US High Dividend 100 Volatility Weighted Index ETF, 0.35 percent
• Compass EMP US Small Cap High Dividend 100 Volatility Weighted Index ETF, 0.35 percent

Compass initially launched six funds last year that weighted different slices of the market by volatility. They are as follows:

• Compass EMP U.S. 500 Volatility Weighted Index ETF (CFA | C-83)
• Compass EMP U.S. 500 Enhanced Volatility Weighted Index ETF (CFO | C-82)
• Compass EMP U.S. EQ Income 100 Enhanced Volatility Weighted Index ETF (CDC| C-67)
• Compass EMP U.S. Discovery 500 Enhanced Volatility Weighted Index ETF (CSF | C-80)
• Compass EMP Developed 500 Enhanced Volatility Weighted Index ETF (CIZ | F-63)

CDC, which combines a focus on high-dividend stocks with Compass’s volatility weighting methodology, is the largest by far of those initial six funds, with almost $85 million in assets under management. It has an expense ratio of 0.68 percent.

CDC is perhaps the most complicated of the Compass funds that debuted last year, combining as it does a screen to exclude companies with negative earnings, a volatility weighting approach and the ability to shift in and out of cash during market downturns.

Many investors have been expecting a sustained spike in volatility for a while now, so Compass is tapping into a key concern by weighting companies based on their volatility levels. The exclusion of companies with negative earnings is also a standard part of its index methodologies. And of course the high-dividend focus of some of the funds will likely appeal to income-hungry investors while interest rates remain low; there’s a reason CDC is the largest of the firm’s ETFs.

The proposed funds are slated to list on the Nasdaq stock exchange, according to the prospectus. However, the filing did not include tickers.