ETF Watch: A Fund For Sports ‘FANZ’

New ETF targets firms sponsoring major league sports. 

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

A new ETF that launched today seeks to target companies that sponsor and partner with sports teams. The ProSports Sponsors ETF (FANZ) invests in companies that are official sponsors for the largest professional sports leagues in the U.S.—football, baseball, hockey and basketball—or that are national sports broadcasters that negotiate rights agreements with those same leagues.

FANZ comes with an expense ratio of 0.69% and lists on the Bats exchange. Bats is owned by CBOE, the parent company of ETF.com.

“The reason these companies want to be a part of the professional sports leagues is because of the audience they bring. It’s a loyal audience. It’s an active audience. It’s a smart audience. But it’s consistently coming back for more and more,” said Jim Kozimor, co-founder and chief strategy officer of SportsETFs, the firm behind FANZ. Kozimor is also an announcer with the NBC Sports Group.

“We realized that the leagues have been growing much faster than the overall economy, through the recession, through the recent uptick and since about 2005,” he added.

Methodology

The fund’s underlying index is equal-weighted and currently includes 66 components. The securities included must be either U.S. common stocks or American depositary receipts (ADRs) with at least $1 billion in market capitalization. Components must also meet minimum liquidity requirements.

According to Nick Fullerton, SportsETFs’ president and co-founder, the index includes mainly large-cap companies. It tilts heavily toward consumer nondiscretionary and discretionary stocks, which comprise about half of the index. There are also notable weightings to technology, energy and financials. Although the index is 85% domestic, through ADRs and Canadian companies listed in the U.S., it offers some exposure to non-U.S. developed markets.

Interestingly, the three publicly traded U.S. professional sports teams—the Cleveland Indians, the Boston Celtics and the Florida Panthers—are not included in the index because they do not constitute partners and do not really fit with the spirit of the index given their regional focus.

“We’re looking for league-wide growth,” Fullerton said.

Principal Adds Pref Securities Fund

Today Principal is rolling out an ETF in an already crowded field, but the firm is offering a new twist that could allow the new fund to carve out some serious assets. The actively managed Principal Spectrum Preferred Securities Active ETF (PREF) joins 11 other funds that target the preferred securities space.

PREF comes with an expense ratio of 0.55% and lists on the Bats exchange. Bats is owned by CBOE, the parent company of ETF.com.

There’s only one other actively managed preferred stock ETF, the First Trust Preferred Securities and Income ETF (FPE), and while the fund is well established, with $2.4 billion in assets under management (AUM), it costs 30 basis points more than PREF. Principal’s new fund is even cheaper than some of the competing passively managed ETFs.

Although there are quite a few preferred security ETFs available, only three of the 11 funds currently trading have less than $200 million in assets. The largest fund in the space, the iShares U.S. Preferred Stock ETF (PFF), has $18.2 billion in AUM. Add in the fact that investors are still hungry for the income offered by preferred securities, and the field is wide open.

“Investors have largely viewed these as an income-generating asset class alongside high-yield, bank loans and high-dividend-paying stocks. That’s why you’re seeing such a large AUM in these types of strategies,” said Principal’s head of ETFs, Paul Kim, who also pointed out that such preferred securities can offer yields of 5-7%.

Key Features
PREF has a few factors differentiating it from the rest of the pack. For one thing, the fund targets “$1,000 par preferred securities,” according to the prospectus. Such securities are issued mainly by financial service companies in large, institutional lot sizes, the document says. According to Kim, this is the largest part of the preferred security space, and PREF is the only fund to focus exclusively on that space, which is not easily accessed by retail investors.

“It’s a first mover in that regard,” he said. Kim notes that preferred securities issued with $25 par list on an exchange and tend to act more like stocks, while those issued with $1,000 par tend to behave more like corporate bonds. 

PREF is managed by Principal Group member firm Spectrum Asset Management; the firm is known for its expertise in preferred securities and has more than $20 billion in AUM. The fund’s active management is extremely important, Kim says, because most of the companies issuing the securities are rather complex financial firms, making it even more important that PREF’s managers can exercise their discretion when researching and selecting the holdings.

Inspire Debuts Faith-Based Bond Fund

Also today, Inspire Investing is launching a corporate bond ETF that looks to reflect biblical values. The Inspire Corporate Bond Impact ETF (IBD) is listing on the NYSE Arca and comes with an expense ratio of 0.61%.

IBD’s index is derived from the S&P 500 Investment Grade Corporate Bond Index and relies on the Inspire Impact Score to select its holdings. The score is designed to reflect the issuing company’s alignment with biblical values.

The methodology begins by screening out companies that have any involvement in abortion, gambling, alcohol, pornography, the support of LGBT causes or the commission of rights violations through terrorism, oppression or persecution. From there, it scores the remaining companies based on positive qualities using publicly available information about how much of a positive impact is made by a company’s products and services, how the company treats its employees, how it benefits the communities it operates in through philanthropy and volunteerism, and how it works to protect the environment, the prospectus says.

Once the analysis is completed, the index targets the 200 top-scoring companies and selects 250 bonds from those issuers. Securities in the index are equal-weighted.

IBD represents the first biblically responsible bond ETF.

Contact Heather Bell at [email protected].

 

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