IndexIQ Launches 2nd Chaikin Fund

Multifactor ETF covers the large-cap space.

Today IndexIQ is launching a follow-up to its most successful launch of the year, the $299 million IQ Chaikin U.S. Small Cap ETF (CSML), which debuted in May. The IQ Chaikin U.S. Large Cap ETF (CLRG) will use the same methodology built around the Chaikin Power Gauge model.

CLRG comes with an expense ratio of 0.25% and lists on the Nasdaq exchange.

Model-Driven Approach

The Chaikin Power Gauge is a multifactor model that uses a quantitative approach to target securities likely to outperform relative to their peers. It evaluates companies according to 20 factors that are divided evenly into four component buckets: value (weighted at 35%), growth (20%), technical (15%) and sentiment (30%). The model was developed in 2010, with the first products based on it launched in 2011.

“It sort of encapsulates how active managers think,” said IndexIQ Chief Investment Officer Sal Bruno.

“What we find particularly attractive is you have your traditional value and growth factors that pretty much any model’s going to have, but what I love about it is it has a 360-degree view of a security from the perspective of all the major stakeholders,” he added, noting that metrics incorporated in the model represented the perspective of buyers, sellers, third-party observers and company insiders.

The Index

CLRG’s underlying index uses the Chaikin Power Gauge to select its components from the market-cap-weighted Nasdaq US 300 Index.

“We’re leveraging the same model that drives CSML, and to us that’s a validation of the strength of the model,” Bruno said. He noted that IndexIQ was excited about CLRG’s launch because large-caps typically receive a bigger allocation in an investor’s portfolio. Given that small-cap CSML has pulled in nearly $300 million, it seems logical the large-cap fund will see even more investors demand.

Methodology

To be selected, a component must be ranked in the top 14% among the parent index’s constituents or rank among the top 43% among the parent index’s constituents while having a price-to-book-value ratio that falls within the lowest quintile among the parent index’s constituents, the prospectus said. CSML’s underlying index methodology uses the price-to-sales ratio rather than the price-to-book-value ratio as part of its value screen

Typically, CLRG’s underlying index will have anywhere from 45-65 components, which are equal-weighted. According to the prospectus, the index components as of June 30 ranged in size from $18.4 billion to $321.6 billion.

“An equally weighted portfolio of large-cap stocks that leverages the predictive power of a multifactor model is something that advisors are looking at as attractive for themselves and their clients,” said Marc Chaikin, creator of the model driving CLRG’s index and CEO of Chaikin Analytics.

Contact Heather Bell at [email protected]