ETF Watch: Brand Value Fund Debuts
Along with an ETN backed by J.P. Morgan and covering the MLP space.
Today Exponential ETFs is rolling out an ETF that targets companies based on the value of their brands. The Brand Value ETF (BVAL) tracks an index developed by Brandometry that is driven by a survey of perceptions about various companies’ brands.
BVAL comes with an expense ratio of 0.65% and lists on the NYSE Arca exchange.
The fund’s underlying index, the BrandTransact 50 Index, covers 50 U.S. companies that are equally weighted at the index’s annual rebalancing. Eligible companies must be included in the Wilshire 5000 Index and have two years’ worth of brand scores assigned by consulting firm Tenet Partners, the prospectus said.
An Umbrella Over Intangibles
“I think brand value is one of the components that has been overlooked by the financial services industry for a long time,” said Larry Medin, co-founder of index provider Brandometry.
“We believe that brand is everything a person thinks they know or knows about a company, and that includes its reputation, innovation, leadership—all the things that are not necessarily shown in the tangible assets of the company. Brand is really the umbrella of all intangibles,” he added.
Tenet focuses on brand innovation and marketing, and the company conducts surveys with a pool of roughly 10,000 participants drawn from the investment and business communities, end users and potential consumers. The surveys focus on the familiarity and favorability of the brands in question, with a final quantitative “BrandPower” score assigned to each company. Companies are selected for the index based on their BrandPower-to-market capitalization ratio for the two years prior, with the top 50 companies in terms of this ratio making the cut for inclusion in the index, the prospectus indicated.
Medin notes that BVAL looks at how a company’s BrandPower score, or the strength of its overall brand, compares with what’s happening to the company’s underlying stock price.
“Often we see disconnects between a well-known brand and its underlying share price. Our index has been able to identify when it’s the right opportunity to put those brands and companies into a portfolio,” he said.
Mostly Large-Caps
The prospectus also notes that the fund consists mainly of large-cap stocks with a tilt toward the consumer discretionary sector.
“We believe the market has become highly efficient as it relates to traditional factors that are used in smart-beta funds,” said Phil Bak, CEO of Exponential ETFs. He adds his firm is looking to find factors where there are still inefficiencies. In his opinion, BVAL offers investors exposure to a previously unexploited factor.
Bak is also the CEO of ACSI Funds, which is the issuer of another survey-based ETF, the American Customer Satisfaction Core Alpha ETF (ACSI). That fund launched in November and has nearly $19 million in assets under management. ACSI Funds will eventually be brought under the Exponential ETFs umbrella, Bak notes.
JPMorgan Adds MLP ETN
Meanwhile, J.P. Morgan is rolling out the Cushing 30 MLP Index ETN (PPLN), which will track the Cushing MLP 30 Index, a benchmark that covers MLPs operating in the midstream energy infrastructure space. The index is equally weighted and uses a fundamental scoring model to rank and select MLPs for inclusion.
According to Cushing Asset Management’s site, the index had a yield of 6.71% as of the end of April.
PPLN comes with an investor fee of 0.95% and is listed on the NYSE Arca exchange. The fund’s launch brings the total number of MLP-focused exchange-traded products to 29. J.P. Morgan is also the issuer of the J.P. Morgan Alerian MLP Index ETN (AMJ), which launched in 2009 and, at $3.49 billion, is the largest MLP ETN currently trading.
Contact Heather Bell at [email protected].