Regular readers of Investor’s Business Daily are well-acquainted with the publication’s venerable IBD 50, a group of fundamentally sound leading stocks displaying impressive relative strength.
Thanks to New York-based Innovator Management, the IBD can now be accessed via the exchange traded fund wrapper in the form of the new Innovator IBD 50 Fund (NYSEArca: FFTY). The actively managed FFTY debuted earlier this month.
FFTY adheres to the CAN SLIM formula pioneered by IBD founder William J. O’Neil. CAN SLIM combines traits such as a company’s current and annual earnings (rising of course), new, innovative proucts, leadership in a given industry, increased institutional ownership and other factors.
“The CAN SLIM formula combines top fundamentals with relative price strength utilizing one of the most extensive stock databases in the securities industry. Typically, the IBD 50 targets companies generating outstanding profit growth, big sales increases, wide profit margins and high return on equity,” according to Innovator Management.
“That would mean this ETF trades partly on fundamentals and partly on technicals. Buying companies with improving earnings quality or new products makes logical sense, but looking for stocks that are trading higher on strong volume or increasing institutional ownership makes it a momentum play as well,” writes Dave Dierking in a Seeking Alpha post.
FFTY’s 50 holdings range in weights of 0.49% to 3.73%. Top 10 holdings include Paycom Softwar (NYSE: PAYC), Cambrex (NYSE: CBM), Akorn (NasdaqGS: AKRX), AutoHome (NasdaqGS: ATHM) and Monster Beverage (NasdaqGS: MNST). The bulk of FFTY’s sector exposure is concentrated in the healthcare, consumer discretionary and technology. On that note, investors should remember the IBD 50 is sector agnostic. [Behind the Super run for Healthcare ETFs]
Over the past 12 years, the IBD 50 has posted “an average annual return of around 18% – almost double that of the S&P 500 over the same period – which is extraordinary, but probably not sustainable into the future,” according to Dierking.
FFTY charges 0.8% per year.
ETF Trends editorial team contributed to this post.