New IndexIQ Int'l ETF Has A Twist

'IQIN' will use fundamental factors to select and weight stocks outside the U.S.
Reviewed by: Staff
Edited by: Staff

Today  IndexIQ, a subsidiary of New York Life Investment Management, launched the IQ 500 International ETF (IQIN), a smart-beta ETF that tracks equities from 23 countries, excluding the U.S. The fund is listed on the NYSE Arca.

IQIN will track the IQ 500 International Index, a rules-based, fundamental index developed by an affiliate of IndexIQ Advisors, the advisor of the fund (read: "IndexIQ Plans 2 Equity ETFs").

According to Sal Bruno, IndexIQ's chief investment officer, IQIN is meant to serve as a supplement to the firm's IQ 50 Percent Hedged FTSE International ETF (HFXI), which applies a 50% currency hedge to a portfolio of stocks from developed markets outside the U.S. and Canada.

"This fund gets back to our roots at IndexIQ," he told "Fundamental weighting is in our DNA."

Stocks From 23 Countries

IQIN's index, which was first built out in 2007, tracks equities of non-U.S.-based companies in a number of developed countries. The starting lineup includes Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the U.K.

To be eligible for inclusion, all securities must meet minimum liquidity thresholds, including a 52-week average daily trading volume of at least $5 million and 100,000 shares. The stock must have also begun trading at least two full quarters prior to the reconstitution date.

Securities must also possess a minimum market cap of at least $1 billion. As of Nov. 30, the companies in IQIN's starting index had market caps ranging from $988 million to $256 billion.

Ranking By Revenue, Operating Margin

Securities are selected and weighted using three fundamental factors: annual sales, annual market share and three-year average operating margin. Securities are then ranked along each factor; then a composite rank is calculated as an equal-weighted average of the three.

The top-scoring 500 securities are included in the index, which is reconstituted and rebalanced once a year.

"We want big companies, but market capitalization can be distorted by price action,” said Bruno. “That's why we're looking at total revenue."

Capped Security Weights

At rebalances, no single security in the index is allowed to have a weighting greater than 5%. Security weights are assessed on a quarterly basis, as well; individual security weights are capped at 10%, with the excess redistributed proportionally among other index components.

There are no sector weight restrictions.

As of Nov. 30, the primary sectors within the index were consumer goods and industrials.

Low Fee Ex-US Exposure

According to the prospectus, IQIN's expenses are capped such that its total expense ratio will be 0.25% through at least August 2020. This makes IQIN just 0.05% more expensive than HFXI; however, it will cost much less than the average fee for a developed-market ex-US ETF, which is 0.43%.

There are 21 other IndexIQ ETFs, including the $1.2 billion IQ Hedge Multi-Strategy Tracker ETF (QAI).

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