ETF Watch: Outperformer Funds Proposed

Exchange-Traded Concepts has two ETFs in registration that would tap into Sanford Bernstein’s quantitative index expertise, and have Vident Investment for subadvisor.

The funds, detailed in a registration statement with the Securities and Exchange Commission, are the Bernstein U.S. Research Fund (BERN) and the Bernstein Global Research Fund (ABGL).

BERN will invest in U.S. large-cap stocks that are expected to outperform the S&P 500 by more than 15 percentage points in the following six to 12 months. The methodology, as explained in the prospectus, is based on a ratings system used by Bernstein analysts that look to categorize stocks as outperformers, market performers or underperformers relative to the S&P 500.

Sources Of Alpha

“The Bernstein quantitative alpha model ranks stocks according to their expected return over the next twelve months based on three components: stock-specific fundamentals, industry rotation and market risk appetite,” the filing said. “Sources of alpha used in the model vary by industry and include measures of valuation, capital use, earnings quality, profitability, and growth dynamics.”

The strategy, however, is not actively managed. It’s designed to track an index of similar names that are rebalanced every calendar month.

ABGL is built largely the same way, but with a global focus. The fund will own stocks expected to outperform the MSCI ACWI Index by more than 15 percentage points in the following six to 12 months, according to the prospectus.

Potential Competitors

BERN and ABGL would join a long list of large-cap ETFs tapping into the universe of the S&P 500 and the MSCI ACWI index.

While narrower in focus—as they look exclusively for a subset of outperformers in each respective universe—BERN would face funds like the SPDR S&P 500 (SPY), the iShares Core S&P 500 (IVV) and the Vanguard S&P 500 ETF (VOO). 

ABGL would navigate among giants such as the iShares MSCI ACWI ETF (ACWI) and SPDR MSCI ACWI IMI ETF (ACIM). 

The filings did not disclose management fees. If approved, both ETFs will be listed on the Bats exchange, which is owned by ETF.com's parent company, CBOE.

Contact Cinthia Murphy at [email protected]