Lattice Strategies, the San Francisco-based money manager with an emphasis on risk-focused research and investment strategy design, made its foray into the exchange traded funds business today with three new ETFs.
“Lattice is not new to the ETF space. It was an early proponent of ETFs, launching its Liquid Endowment Strategies in 2007 and developing custom strategy indexes that power private-label ETFs, with each investment solution designed to reallocate risk to drive capital growth. As of December 2014, approximately $1.7 billion was managed to investment strategies developed by Lattice for retail and institutional investors,” according to a statement issued by the firm.
Lattice’s new ETFs are the Lattice Emerging Market Strategy ETF (NYSEArca: ROAM), Lattice Developed Markets (ex-US) Strategy ETF (NYSEArca: RODM), and the Lattice US Equity Strategy ETF (NYSEArca: ROUS).
ROAM, the Lattice emerging markets ETF, tracks the Lattice Risk-Optimized Advancing Markets Strategy Index. The fund is part of a growing number of recently launched emerging markets ETF that eschew the old way of doing things with emerging markets funds, that includes cap-weighting and significant if not risky exposure to the BRIC nations and state-run enterprises. [Dodge State-Run Companies With This EM ETF]
ROAM’s “Index methodology establishes risk-balanced country baskets that reflect each country’s general economic footprint. By using downside risk to determine company weighting, the methodology de-concentrates capital allocation (resulting in lower exposure to developed markets-facing global multi-nationals and state-owned enterprises) and re-allocates risk capital across the wider opportunity set (increased allocation to smaller, more locally driven enterprises),” according to Lattice.
As of the end of last year, the BRIC nations accounted for just over 22% of ROAM’s underlying index’s weight. Malaysia and Taiwan were the largest country weights at 9.1% and 8.6%, respectively.
RODM, the firm’s ex-U.S. developed markets ETF, tracks the Lattice Risk-Optimized Developed Markets (ex-US) Strategy Index. That index “seeks to de-concentrate capital and reduce exposure to mega-cap, multi-national companies as well as currencies that dominate cap-weighted indices such as the Euro and Yen,” according to Lattice.
Japan, Canada and the U.K. combined for over 44% of that index’s weight at the end of last year. At the end of 2014, the Lattice Risk-Optimized Developed Markets (ex-US) Strategy Index had a dividend yield of 3.4% and P/E ratio of 12.4, according to issuer data.
ROUS, the Lattice U.S.-focused ETF, benchmarks to the Lattice Risk-Optimized US Large Cap Equity Strategy Index, which “seeks to identify and select companies with favorable combinations of diversified risk premia (valuation, momentum, and quality).”
The index is heavy on financial services stocks with that sector commanding a weight of nearly 19.2% at the end of 2014. Technology, consumer discretionary, health care and industrial names also receive double-digit allocations in the index.
ROUS charges 0.35% per year while RODM charges 0.5%. ROAM, the emerging markets ETF, has an annual fee of 0.65%.
Lattice Risk-Optimized US Large Cap Equity Strategy Index Cap Allocation
Chart Courtesy: Lattice Strategies
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