ETF Securities, the London-based exchange traded funds issuer known primarily for its lineup of commodities funds, is again adding to its lineup of U.S.-listed equity-based offering with the debuts of the ETFS Diversified-Factor U.S. Large Cap Index Fund (NYSEArca: SBUS) and the ETFS Diversified-Factor Developed Europe Index Fund (NYSEArca: SBEU).
ETF Securities is partnering with ERI Scientific Beta on the new ETFs. Scientific Beta is an index provider specializing in smart beta solutions and is part of the EDHEC Risk Institute, an entity that works closely with institutions to implement academic research and improve their investment and risk management process, according to a statement.
Scientific Beta’s stock selection process includes emphasizing investment factors, such as volatility, valuation, momentum and size. Factor-based funds are one of the fastest-growing segments of the ETF universe. The quality factor alone is the cornerstone of nearly 30 ETFs and issuers continue to bring an array of factor-driven ETFs to market. [Quality ETFs on the Rise]
Since the start of 2015, J.P. Morgan introduced the JPMorgan Diversified Return Emerging Markets Equity ETF (NYSEArca: JPEM), a multi-factor emerging markets ETF, while iShares added two international ETFs to its factor-based suite. [More Factor ETFs Come to Market]
The ETFS Diversified-Factor U.S. Large Cap Index Fund tracks the Scientific Beta United States Multi-Beta Multi-Strategy Equal Weight Index, which “uses 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,” according to ETF Securities.
Financials services is the largest sector weight in SBUS at 19.2% followed by consumer cyclicals at 13.9%. No stock accounts for more than 0.72% of the new ETF’s weight. Top 10 holdings include CareFusion (NYSE: CFN), Annaly Capital (NYSE: NLY) and Dow component Merck (NYSE: MRK).