ETF That Pays You Debuts

Today Salt Financial has taken an unprecedented step with its latest ETF launch. The Salt Low truBeta US Market ETF (LSLT), a counterpart to the firm’s existing Salt High truBeta US Market ETF (SLT), comes with a waiver applied that drops its expense ratio from 0.29% to -0.05%, meaning investors essentially get paid for investing in the fund.

LSLT lists on Cboe Global Markets, parent company of ETF.com.

LSLT would have been fairly cheap for a smart-beta ETF at 0.29%, but its move with the waiver is sure to garner attention for the fund. The waiver will be effective through April 30, 2020, but if the fund hits $100 million in assets under management (AUM), the rebate paid to investors will be capped. The move one-ups the strategy of SoFi, which recently updated its filing for four ETFs to include waivers that would take two of the ETFs’ fees down to zero (read: First ‘Zero Fee’ ETF Filed).

Methodology

While SLT is focused on high-volatility—or high-beta—stocks, LSLT’s methodology goes in the opposite direction. The new fund has the same starting universe as SLT in the 1,000 largest U.S.-listed stocks, and it follows the same initial methodology as SLT.

A proprietary algorithm is used to calculate each stock’s truBeta score, or projected beta, for the next quarter, based on its historical long-, medium- and short-term performance, according to the prospectus, and machine learning is used to tweak the model going forward.

Salt Financial has noted it believes the inclusion of intraday data makes for a more accurate forecast of market sensitivity.

While SLT narrows its selection universe to stocks with a truBeta score above 1.00, which represents the truBeta of the broad market, LSLT weeds out everything but stocks with scores below that level, and calculates beta variability scores for the remaining stocks. The methodology ultimately selecting the 100 securities with the lowest beta variability scores and equal-weights them, subject to certain diversification requirements.

In contrast, SLT’s methodology relies solely on truBeta scores and does not use the beta variability calculation in its selection methodology.

Complementary Pair

The two funds are designed as a complementary pair, according to Alfred Eskandar, co-founder, president and chief operating officer of Salt Financial.

“The two ETFs—SLT and the newly launched LSLT—are designed to work together. Combined in various ratios—50/50, 80/20, etc.—investors can now pinpoint the level of beta (market risk) they want for their optimal risk/reward trade-offs,” he noted.

SLT rolled out in May 2018 with an expense ratio of 0.29% and has accumulated just over $10 million in AUM (read: “Newcomer Debuts Unique High Beta ETF”).

Contact Heather Bell at [email protected]