Everywhere you look – from the car you drive to the cereal you eat – branding is everywhere. And it’s in that brand identity that corporations derive some serious value. Historically, a brand’s image can make or break a company, drive sales or push it into obscurity. For investors, the job of picking the firms with the best brands has been a daunting task. How do we know which firm is designed to succeed or setting itself up for failure?
With the new smart-beta revolution, screening can at least help us on that journey, and this week’s new ETF does just that.
|Ticker||Name||Issuer||Launch Date||ETFdb.com Category||Expense Ratio|
Brand Value ETF
|Exponential ETFs||06/13/2017||Large Cap Value Equities||0.65%|
Goldman Sachs Access Investment Grade Corporate Bond ETF
|Goldman Sachs||06/06/2017||Corporate Bonds||0.14%|
Measuring Branding in a Fund
Marketers have long tried to put data metrics to a firm’s brand’s worth. Around the end/start of the year, we often see “Most Valuable Brand Lists” from a variety of publications, but for investors, those records often come after the fact. A newcomer to the world of ETFs – Exponential ETFs – hopes to change that and to allow investors to tap into branding in a new way.
Exponential ETFs, along with partner Brandometry, has launched the Brand Value ETF (BVAL ). BVAL will seek to find those firms whose brands’ actual value hasn’t been discovered by the market yet and isn’t reflected in their stock price. The idea is that future moves in these firms’ brands will drive profits and margin expansion for shares.
BVAL will track the BrandTransact 50 Index. The smart-beta index uses a survey process to craft its portfolio. The index provider will survey nearly 10,000 investment and business participants, end users and potential consumers across the U.S on the familiarity and favorability of various firms’ brands and products. From there, each stock is assigned a quantitative “BrandPower” score. The stocks with the top 50 scores are then weighted based on a proprietary method, including how their brand is helping their share performance.
What investors ultimately get is a way to bet on an intangible factor, not available before in a portfolio. And based on Exponential’s and Brandometry’s research, branding is just as powerful of a factor as, say, momentum or quality. Time will tell if the ETF lives up to its promise – but it is an innovative take on owning stocks.
Expenses for BVAL run a big high at 0.65%, or $65 per $10,000 invested.
For a list of all new ETF launches, take a look at our ETF Launch Center.
Goldman Gets Smart With Bonds
Stocks have traditionally been the place for new smart-beta funds; bonds may actually be the better bet for the screening techniques. Most bond indexes weight their holdings on the amount of debt issued. So a heavily indebted firm will be the largest holding in most traditional bond indexes. That’s exactly what you don’t want.
The new Goldman Sachs Access Investment Grade Corporate Bond ETF (GIGB ) hopes to eliminate that.
GIGB will track the Citi Goldman Sachs Investment Grade Corporate Bond Index, which is a measure of global corporate bonds denominated in U.S. dollars. The ETF will use various screens to avoid those bonds with high default probabilities, cash flow problems or the potential to lose value quickly. The focus is on the strength of issuer, rather than the amount of debt issued. The ETF also uses minimum size and credit quality requirements when crafting its portfolio.
In the end, GIGB’s portfolio should provide a better return than broad corporate bond ETFs like the popular iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD ). GIGB already beats LQD on one metric – it’s cheaper to own. Expenses for Goldman’s new ETF only costs a paltry 0.14% in fees.
If the ETF delivers on its promise of better returns, that little price could be a deal sweetener and cause investors to jump ship into the smart-beta fund.
For a list of all Goldman Sach’s ETFs, look here.
The Bottom Line
ETF issuers continue to use smart-beta effectively to design new products for portfolios. This time, however, that has meant trying to quantify the intangible and improving on a firm’s debts. For investors, both GIGB and BVAL are proof that innovation is still alive and well in the ETF industry.
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