In the end, the active ETF will hold about 25 and 40 stocks after all the screens. According to AlphaMark, there are currently 29 components, and the top positions include Basic Energy (NYSE: BAS), BOFI Holdings (NYSE: BOFI) and Dycom Industries (NYSE: DY) 4.8%.
Simon also explained that component weightings could follow a more equal-weight methodology over time as the fund trims gains from holdings that have grown. Additionally, SMCP may favor sectors that have shown higher momentum – there is no utilities sector exposure at this time.
“Current allocations are still above the Russell 2000 weights,” Simons told ETF Trends. “The ETF is a little overweight in energy as we can’t avoid the attractive valuations.”
On the sell side, Simon outlines a disciplined approach to trimming positions. A component may be ditched if there is a significant change in a company’s structure or management, a change in the industry or sector due to outside factors like legislation, a position exceeds 7% of the portfolio or doubled, a stock experiences a decrease in earnings momentum by more than 5%, or a stock price is overvalued 20% or more based on cash flow models.
SMCP has a 0.90% expense ratio.
For more information on active ETFs, visit our actively managed ETFs category.
Max Chen contributed to this article.