Smart beta exchange traded funds have been around awhile, perhaps longer than many advisors and realize. Now, Global X is taking the scientific approach to beta with the introduction of four new ETFs.
Global X’s new scientific beta ETFs are factor-based funds, but rather than isolating a single factor, such as momentum or value, the new ETFs emphasize the following four factors: Low volatility, momentum, size and value.
The Global X Scientific Beta US ETF (NYSEArca: SCIU) tracks the Scientific Beta United States Multi
-Beta Multi-Strategy Equal Risk Contribution Index with the aim of outpacing cap-weighted benchmarks with less volatility.
SCIU’s 483 holdings are parsed from the 500 largest U.S. stocks with 18.2% of those stocks hailing from the financial services sector. The new ETF allocates 15.7% to technology stocks and 14% to healthcare names. SCIU charges 0.35% per year, which is reasonable among smart beta funds, particularly for ETFs like SCIU that blend active elements and multi-factor strategies. [Smart Beta Boom]
The Global X Scientific Beta Europe ETF (NYSEArca: SCID) benchmarks to the Scientific Beta Extended Europe Multi-Beta Multi-Strategy Equal Risk Contribution Index. Home to 565 stocks, SCID’s selection universe is the developed Europe nations of Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.
U.K. stocks account for nearly a third of SCID’s weight while France is the only other country with double-digit representation at just over 13%.
“Rather than providing exposure to a single factor, like a Large Cap Value fund, the Global X Scientific Beta ETFs select stocks in a method that provides exposure to four factors simultaneously: Value, Size, Momentum, and Low Volatility. While individually each factor has historically outperformed the market, the Scientific Beta strategy seeks to smooth the cyclicality of their returns and deliver more consistent outperformance by combining multiple factors together,” according to Global X.
Said another way, momentum can be style one year while low volatility shines the next year. That was the case in 2013 and 2014 when momentum went from best to worst among the four factors while low volatility went from worst to first. http://www.etftrends.com/2015/04/low-volitility-etfs-can-still-see-swings-in-short-timeframes/
The Global X Scientific Beta Asia ex-Japan ETF (NYSEArca: SCIX) tracks the Scientific Beta Developed Asia-Pacific ex-Japan Multi-Beta Multi-Strategy Equal Risk Contribution Index. Though SCIX excludes Japan, its country allocations are conservative. The new ETF only features Hong Kong, Australia, South Korea,Singapore and New Zealand in its country lineup.
The Global X Scientific Beta Japan ETF (NYSEArca: SCIJ) is Global X’s dedicated Japan offering. SCIJ follows the Scientific Beta Japan Multi-Beta Multi-Strategy Equal Risk Contribution Index, the Japan equivalent of the index tracked by SCIU, the scientific beta U.S. ETF.
SCIJ is levered to Japanese exporters with a combined weight of 40% to the industrial, consumer discretionary and technology sectors. All three of Global X’s international scientific beta ETFs charge 0.38% per year.
SCIU Top Holdings and Sector Weights
Charts Courtesy: Global X