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.
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.
ETF Filing: New Firm Plans ‘Shielded Alpha’ Funds
A new firm believes it has the solution to the nontransparent actively managed ETF conundrum. Recently, Blue Tractor Group made its third amended filing for an ETF structure that would provide a bit more opacity to actively managed funds.
The “Shielded Alpha” methodology offers “substantial portfolio transparency” by using an algorithm on a daily basis to generate a random portfolio called the “Dynamic Stock Specific Risk Portfolio” that would overlap with the actual fund portfolio by 90-100%. Although the exact level of overlap would not be revealed on any given day, over time, it would average out to 95%.
Finally, weightings would be generated for the individual stocks within the dummy portfolio with the intention of minimizing tracking error between it and the real portfolio, the filing said.
An Interchangeable Portfolio
That resulting portfolio is designed to allow for the use of in-kind creation baskets, the calculation of the intraday indicative value and its use as a hedging basket by market makers. At the same time, the exact fund portfolio will not be revealed, and market participants will not be able to figure out the exact holdings, the document indicated.
“The Dynamic SSRS Portfolio will shield the alpha generating strategies of the portfolio manager of the Fund,” the filing said, noting that Blue Tractor expects the funds to trade on the secondary market at prices very close to net asset value.
Blue Tractor has already filed for an individual ETF, the Blue Tractor Large Cap Equity ETF, which will be actively managed and select its components from the S&P 500 Index. The filing did not include an expense ratio, ticker or listing exchange.
There are currently no nontransparent actively managed ETFs trading on U.S. exchanges. Eaton Vance has launched its NextShares family, but those are not quite ETFs, even if they trade on a stock exchange. And Precidian is still seeking approval to use its own proposed structure. All that said, it’s not clear how significant of an impediment transparency represents to ETF issuers, and the issue has been debated extensively.
50 Funds Leave The NYSE
Today marks the departure of 50 iShares ETFs from the NYSE Arca exchange and their relocation to new homes on the Bats and Nasdaq exchanges. The SEC will have to approve this latest amended 40-APP filing from Blue Tractor, which is not a guaranteed outcome. Bats is owned by ETF.com’s parent company, CBOE.
The 30 iShares funds moving to the Bats exchange include the following:
The list of the 20 iShares ETFs moving to the Nasdaq is as follows:
Contact Heather Bell at [email protected]