Graham Tuckwell, Founder and Chairman of ETF Securities, joined Tom Lydon, ETF Trends Publisher, at the Inside ETFs conference in Hollywood, Florida to discuss the innovations and growth in the Exchange Traded Fund business.
As the industry matures, products are growing more sophisticated and ETF providers should be active in educating investors about the proper usage of the fund products, especially with more people looking to the investment vehicle, Tuckwell said.
For example, Zacks and ETF Securities have partnered to provide the ETFS Zacks Earnings Large-Cap U.S. Index Fund (NYSEArca: ZLRG) and the ETFS Zacks Earnings Small-Cap U.S. Index Fund (NYSEArca: ZSML), two alpha focused generating ETF methodologies.
ZRLG and ZSML target four factors that stock holdings are rated on: The extent at which all analysts are revising earnings estimates; the size by which the consensus has changed; the difference between the most accurate estimate and consensus estimate; lastly, the few quarters of EPS surprise.
The ETFs’ components are selected based on Zacks Quality, which refers to the amount of non-cash components, or accruals, in each company’s reported earnings – only 10% of firms with the lowest sector-adjusted accruals are eligible for inclusion.
After accounting for the earnings estimates and quality, the component picks are controlled for risk exposure by diversifying across sectors.
Additionally, ETF Securities has partnered with ERI Scientific Beta on the relatively new ETFS Diversified-Factor U.S. Large Cap Index Fund (NYSEArca: SBUS) and ETFS Diversified-Factor Developed Europe Index Fund (NYSEArca: SBEU). 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 has also recently came out with smart-beta ETFs of its own. The two ETFs’ selection process includes emphasizing investment factors, such as volatility, valuation, momentum and size.
The ETFS Diversified-Factor U.S. Large Cap Index Fund and ETFS Diversified-Factor Developed Europe Index also use 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.
Click on the video below to see the full interview.
Financial advisors who are interested in learning more about investing ideas for 2016 can register for upcoming ETF Securities webcast, Outlook 2016: Don’t Believe the Hype, or listen to it on demand later on.