ValueShares, the exchange traded funds unit of registered investment advisory firm Alpha Architect, expanded its lineup of quantitative ETFs today with the debut of the ValueShares International Quantitative Value ETF (BATS: IVAL).
Like its older counterpart, the ValueShares U.S. Quantitative Value ETF (BATS: QVAL), which debuted in Octoer, IVAL is actively managed. In an effort to find high quality international value stocks trading at discounts, ValueShares employs a five-step process that includes forensic accounting, valuation and quality screens. http://valueshares.com/assets/pdf/IVAL/IVAL_Factsheet_final.pdf
ValueShares tries to eliminate any companies with dubious finances or accounting schemes, along with stocks with operating cash flows that persistently fall behind net income, volatile financial statement ratios, high leverage and rapid sales growth.
The remaining picks are sorted by earnings before interest and taxes, or EBIT, over total enterprise value, or TEV. TEV is equal to market cap plus debt, minus excess cash, preferreds and minority interests. Stocks are selected on low enterprise values relative to operating earnings. Lee argues that in back-tested data, the strategy’s value comes from its EBIT/TEV, providing a more discriminatory take on value than traditional ratios like price-to-earnings and price-to-book. [A New ETF for Undervalued Markets]
IVAL holds about 50 stock, primarily from developed markets but the new ETF has the flexibility to include emerging markets stocks if those equities meet the fund’s liquidity requirements.
“IVAL is concentrated and highly active, unlike most value-based ETFs,” said ValueShares Chief Investment Officer and founder Dr. Wesley Gray in a statement. “The market is awash with closet-index strategies which hold 200 or more securities. We seek to deliver a high-conviction value approach backed by extensive academic and market research and a substantive knowledge of the manner in which irrational investor behavior can create mispricing. With IVAL, we can now give our investors access to this strategy with an international lens.”
Like its U.S.-focused stablemate, IVAL looks to exploit behavioral bias that is persistent throughout financial markets.
IVAL charges 0.99% per year.
ETF Trends editorial team contributed to this post.