ETF Watch: Elkhorn Rolls Out Low Vol, High Beta Fund

New ETF uses benchmark that toggles between two indexes.

ETF.com
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Reviewed by: etf.com Staff
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Edited by: etf.com Staff

Today, Elkhorn Investments, the ETF firm founded by Ben Fulton, creator of the Powershares S&P 500 Low Volatility Portfolio (SPLV), is launching yet another ETF targeting a unique exposure to the market. The Elkhorn Lunt Low Vol/High Beta Tactical ETF (LVHB) is listing on the Bats Exchange with an expense ratio of 0.49%.

Constant S&P 500 Exposure
The fund’s methodology involves a strategy that comprises two indexes—the S&P 500 Low Volatility Index and the S&P 500 High Beta Index. Both are derived from the S&P 500 and cover the 100 least volatile and the 100 highest-beta stocks in that index, respectively. Every month, the two indexes are evaluated in terms of relative strength, with the highest-scoring index designated as the fund’s benchmark until the next monthly evaluation.

“We’re exploring the concept of constant exposure to S&P 500 names, but possibly you want to move from factor to factor. So instead of blending factors, you want to tactically move away from or to other factors,” Fulton said of the strategy.

To be clear, the fund invests its assets into the stocks in one index based on its relative strength as compared to the other index. The two indexes both cover discrete groups of stocks, though both are derived from the same parent index. Fulton notes that historically the Lunt index has been invested about two-thirds of the time in low-vol stocks, and that the fund is expected to average two to three switches between the indexes in a year.

“Our goal is to minimize the taxes with that. It’s never a guarantee , but we feel confident we can,” Fulton said. He added that as the fund begins trading, it will be allocated to the high-beta index.

A Unique Strategy
Although there have been similar funds that have toggled between indexes in a similar manner, this is the first one to do so based on relative strength signals and to cover separate slices of the U.S. large caps space.

Elkhorn developed the strategy with Lunt Capital Management, an ETF strategist based in Utah. Another Utah-based firm, Soltis Investment Advisors, is expected to invest $50 million in seed money in the new ETF and use it across their accounts, according to Fulton.

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Contact Heather Bell at [email protected].

 

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