Transamerica, the financial services provider perhaps best known for its insurance products, also manages over 50 different mutual funds. Last week, Transamerica added ETFs to its product lineup for the first time with its DeltaShares family of funds.
The four new ETFs look to provide broad risk-managed exposure to equities and U.S. Treasuries. In addition, ProShares adds a new fund to its roster that aims to take advantage of rising interest rates.
Here is the list of new ETF launches in focus this week.
| Ticker | Name | Issuer | Launch Date | ETFdb.com Category | Expense Ratio |
|---|---|---|---|---|---|
| (EQRR ) | ProShares Equities for Rising Rates ETF | ProShares | 07/24/2017 | Large Cap Blend Equities | 0.35% |
| (DMRL ) | DeltaShares S&P 500 Managed Risk ETF | Transamerica Asset Management | 07/31/2017 | Large Cap Blend Equities | 0.35% |
| (DMRM ) | DeltaShares S&P 400 Managed Risk ETF | Transamerica Asset Management | 07/31/2017 | Mid Cap Blend Equities | 0.45% |
| (DMRS ) | DeltaShares S&P 600 Managed Risk ETF | Transamerica Asset Management | 07/31/2017 | Small Cap Blend Equities | 0.45% |
| (DMRI ) | DeltaShares S&P International Managed Risk ETF | Transamerica Asset Management | 07/31/2017 | Foreign Large Cap Equities | 0.50% |
For a list of all new ETF launches, take a look at our ETF Launch Center.
Transamerica Launches ETF Line With Volatility-Hedged Equity Funds
Transamerica’s entry into the ETF marketplace starts with four broadly diversified funds that aim to minimize overall portfolio volatility and limit losses during stronger market downturns. Each fund uses a substantially similar risk management methodology focused on a specific index. The DeltaShares S&P 500 Managed Risk ETF (DMRL ), the DeltaShares S&P 400 Managed Risk ETF (DMRM ) and the DeltaShares S&P 600 Managed Risk ETF (DMRS ) target the popular large-cap, mid-cap and small-cap indices, respectively. The DeltaShares S&P International Managed Risk ETF (DMRI ) concentrates on large- and mid-cap stocks from primarily the European and Asia Pacific regions while excluding investments in Korea.
Each index within the S&P Managed Risk Index series is made up of three different components: an equity index represented by the region or market cap the fund is targeting, a fixed income index which focuses on medium-term Treasury notes, and a cash element comprised of 0-3 month Treasury bills. The allocations to each of those components is based on the realized volatilities in the equity and fixed income positions. The indices use a proprietary risk control model to measure the level of variance within the equity and fixed income universes, and choose the highest equity allocation that allows it to stay within acceptable risk limits. In other words, as volatility falls, the allocation to equities increases. As volatility rises, more capital is allocated to fixed income. As a final step, each index layers on a synthetic put option to provide further downside protection. The index is rebalanced on a daily basis in order to constantly monitor and adjust to changes in market volatility.
While the S&P 500, S&P 400 and S&P 600 ETFs are U.S.-based, the International ETF holds positions in more than two dozen different companies. The fund is approximately two-thirds invested in Europe and one-third in the Asia Pacific area. At present, top country holdings include Japan (25%), United Kingdom (15%), France (9%) and Germany (8%).
The S&P 500 ETF has an expense ratio of 0.35%, while the S&P 400 and S&P 600 funds charge 0.45%. The International ETF carries an expense ratio of 0.50%.
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ProShares ETF Tries to Profit From Rising Interest Rates
Many investors worry about how rising interest rates will affect their equity investments, but very few funds offer a direct hedge against them. The ProShares Equities for Rising Rates ETF (EQRR ) debuted last week with an intention to outperform traditional large-cap equity funds during periods of rising interest rates.
The fund is designed to replicate the Nasdaq U.S. Large Cap Equity Rising Rates Index. It starts by selecting the five sectors that have historically demonstrated the highest correlation to 10-year Treasury yields over the past three years. Next, the index provides higher allocations to those sectors with the strongest correlation. Those sectors currently are financials, energy, industrials, basic materials and information technology. Within each sector, the index identifies the ten stocks with the highest correlation to Treasuries resulting in a portfolio that contains 50 names in total.
While not specifically designed for dividend income, the fund currently pays an attractive yield of 2.6%, higher than the 1.9% yield offered by the S&P 500. The Rising Rates ETF charges an expense ratio of 0.35%.
The Bottom Line
Low volatility and other risk-managed strategies have become increasingly popular over the past few years, so it’s not surprising that Transamerica chose to enter the ETF marketplace using that strategy. The Equities for Rising Rates ETF launches at an intriguing point for investors. The Federal Reserve has raised interest four times since the end of 2015, but would likely need several more hikes to return to a more historically normal range. A fund that looks to profit from this kind of environment could quickly gain interest.
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