This week, investors welcomed two new products from New York-based ETF Securities: the Diversified-Factor U.S. Large Cap Index Fund (SBUS ) and the Diversified-Factor Developed Europe Index Fund (SBEU ).
Scientific Beta Indexes
On Tuesday January 27, ETF Securities introduced two new funds to their product lineup, which utilize a new approach to indexing, called the Scientific Beta’s multi-factor, multi-strategy. Scientific Beta is an index provider specializing in smart beta solutions and is part of the EDHEC Risk Institute. The indexes developed by Scientific Beta aim to address two key issues seen in traditional market cap weighted indexes:
- Exposure towards non-performing market factors
- Lack of diversification
In order to address these issues, the Scientific Beta indexes utilize a proprietary stock selection and weighting methodology:
- Stock Selection: The indexes select stocks that provide exposure to four academically documented and widely accepted factors: Low volatility, Value, Momentum and Size.
- Weighting Methodology: The indexes use a proprietary weighting strategy to provide well diversified exposure, by combining 5 models: Maximum Deconcentration, Maximum Decorrelation, Efficient Minimum Volatility, Efficient Maximum Sharpe Ratio, and Diversified Risk Weighted.
Be sure to also read Silicon Valley Meets Wall Street: The Next Evolution of ETFs.
Diversified U.S. and European Equity Exposure
The Diversified-Factor U.S. Large Cap Index Fund (SBUS ) tracks the Scientific Beta United States Multi-Beta Multi-Strategy Equal Weight Index, which utilizes the methodology outlined above. The underlying index will apply this strategy to a universe of the 500 largest and most liquid stocks listed on U.S. exchanges. The resulting portfolio contains over 480 individual securities, each of which has an allocation of no more than 0.75% of SBUS’s total assets.
The Diversified-Factor Developed Europe Index Fund (SBEU ) tracks the Scientific Beta Developed Europe Multi-Beta Multi-Strategy Equal Weight Index, which focuses on equities that meet the methodology’s criteria from developed European countries. SBEU’s portfolio consists of roughly 475 holdings from the following countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.
Commenting on the launches, Director of Research at ETF Securities stated: “We are very proud to collaborate with Scientific Beta and bring to market the latest academic research with regard to smart beta indices. Private investors now have access to solutions previously only available to large institutions, through ETFs that track indices whose methodology is fully transparent.”
The two new funds will both charge an expense ratio of 0.40% and are listed on the New York Stock Exchange.
Follow me on Twitter @DPylypczak.
Disclosure: No positions at time of writing.