ETF Watch: Guggenheim Launches Multifactor Fund

New ETF offers a concentrated subset of the S&P 500 Index.

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

Today Guggenheim rolled out an ETF that covers 50 stocks selected from the S&P 500 Index using a multifactor approach. The Guggenheim Multi-Factor Large Cap ETF (GMFL) targets fundamental and nonfundamental factors.

GMFL comes with an expense ratio of 0.25% and is listed on the NYSE Arca exchange.

The index methodology screens the S&P 500 for stocks with favorable exposure to various factors, including value, growth, quality, momentum, short interest, volatility and liquidity, assigning each stock a composite score.

The prospectus notes the process uses multiple factors for the sake of diversification and more consistent performance, given that individual factors tend to have cyclical performance.

The 50 components included in the index are equally weighted on a quarterly basis. As of May 31, the index’s components ranged in capitalization size from $3.2 billion to $238 billion.

A Diversified Approach

“While many multifactor strategies favor popular factors, like value, quality or momentum, Guggenheim has advanced multifactor investing by combining seven factors—both fundamental and nonfundamental—that seek to offer more stable performance across market cycles,” said William Belden, Guggenheim’s head of ETFs business development.

“Although performance in the market may be driven at times by narrow factors that work well in the short term, the strategy selects stocks based on multiple factors based on long-standing research that may provide more consistent and reliable performance,” he added.

Guggenheim also offers the well-known Guggenheim S&P 500 Equal Weight ETF (RSP), which has nearly $14 billion in assets under management and is considered by some to be the first smart-beta ETF. The fund equally weights all 500 components of the S&P 500 and has generally outperformed the cap-weighted index since its 2003 inception.

 

PowerShares’ Plain Vanilla Filing

Two new filings of note have come in from different issuers. The first, from Invesco PowerShares, takes the company in a very different direction. The second is a filing from a newcomer that looks to invest in companies that, along with their employees, have donated strongly to the Republican Party.

PowerShares’ latest filing outlines plans for six funds to be marketed under the “PureBeta” brand. The ETFs will track well-known traditional cap-weighted indexes and will cover core asset classes: U.S. large-cap and small-cap, developed non-U.S. markets, emerging markets, and broad and short-term fixed income.

The funds and their underlying indexes are as follows:

  • PowerShares PureBeta MSCI USA Portfolio, tracking the MSCI USA Index
  • PowerShares PureBeta MSCI USA Small Cap Portfolio, tracking the MSCI USA Small Cap Index
  • PowerShares PureBeta FTSE Developed ex-North America Portfolio, tracking the FTSE Developed ex North America Index
  • PowerShares PureBeta FTSE Emerging Markets Portfolio, tracking the FTSE Emerging Index
  • PowerShares PureBeta US Aggregate Bond Portfolio, tracking the BofA Merrill Lynch US Broad Market Index
  • PowerShares PureBeta 0-5 Yr US TIPS Portfolio, tracking the BofA Merrill Lynch 0-5 Year US Inflation-Linked Treasury Index

The move is an interesting one for PowerShares, which built itself up into the No. 4 ETF issuer on the backs of its smart-beta funds.

The firm has never offered much in the way of “core” products; however, it looks like it has decided that a full range of ETF offerings will be necessary if it wants to climb higher than fourth place in the ETF sweepstakes. It remains to be seen how strongly the firm will work to compete on price.

The filing did not include tickers or expense ratios, but did indicate the funds will list on the Bats exchange. Bats is owned by CBOE, the parent company of ETF.com.

Partisan Product

The Point Bridge GOP Stock Tracker ETF is most definitely not plain-vanilla. The fund, which is advised by Point Bridge Capital and subadvised by Vident Investment Advisory, invests in companies based on how much their employees and political action committees have donated to candidates and organizations representing the political party.

The fund selects its components from the S&P 500 and screens out companies with an aggregate political donation amount over the last two two-year election cycles of less than $25,000.

Companies are ranked based on the total net dollars and on the net percentage of donations to Republican candidates and organizations relative to donations to Democratic Party candidates and institutions.

From there, it selects the top 150 companies and equally weights them. Rebalancings occur semiannually, while reconstitutions occur after the end of each election cycle. The next reconstitution is slated for May 2019, the prospectus said.

Contact Heather Bell at [email protected].

 

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