Insurer and investment firm Transamerica Corp. is entering the ETF space today for the first time, with the launch of four funds focused on—appropriately enough for an insurance company—risk management. The four funds, their tickers and their expense ratios are as follows:
- DeltaShares S&P 500 Managed Risk ETF (DMRL), 0.35%
- DeltaShares S&P 400 Managed Risk ETF (DMRM), 0.45%
- DeltaShares S&P 600 Managed Risk ETF (DMRS), 0.45%
- DeltaShares S&P International Managed Risk ETF (DMRI), 0.50%
All four are listed on the NYSE Arca exchange.
Each of the four funds tracks a composite index that allocates their assets among three subindexes covering a particular group of equities, five-year Treasury bonds and zero- to three-month Treasury bills, with the intention of managing volatility and limiting exposure to severe market declines.
Essentially, when volatility rises, the allocation to fixed income in the form of T-bills and Treasurys also increases, while the equity allocation increases as volatility falls. The index for each fund is rebalanced daily, the prospectus said.
Specific Scenarios
At a more granular level, when volatility is increasing, a greater allocation is made to T-bills based on three specific scenarios: 1) when the yield-to-maturity on the Treasury bond index is not sufficiently higher than the effective federal funds rate; 2) when the index representing Treasury bonds experiences high volatility; and 3) when there is a positive correlation between the Treasury bond and equity indexes.
The methodology also uses a ratio of the moving average of each fund’s composite index to the composite index’s current level. When the ratio increases, the methodology allocates less to equities and more to either of the two fixed-income components, and when the ratio decreases, it allocates less to fixed income and more to equities.
Although the allocation changes are calculated and implemented daily, the equity index’s allocation is limited to a change of no more than 10%, according to the prospectus.
The U.S. funds’ equity allocations are tied to the S&P 500 Index, the S&P Midcap 400 Index and the S&P SmallCap 600 Index, while the international fund uses the S&P EPAC Ex-Korea LargeMidCap Index to represent its equity allocation.
The funds are subadvised by Milliman Financial Risk Management. Each can invest in derivatives and other ETFs to achieve their investment goals, the document said.
