Principal Funds, a relatively new player in the exchange traded fund game, has debuted two new smart-beta or alternative index-based ETFs. One targets firms that offer inelastic goods or have substantial pricing power while the other fund focuses on companies that return value to investors.
The Principal Shareholder Yield Index ETF (NasdaqGM: PY) and Principal Price Setters Index ETF (NasdaqGM: PSET) have begun trading. PY and PSET both have a 0.40% expense ratio.
PY tries to reflect the performance of the Nasdaq U.S. Shareholder Yield Index, which provides targets mid- and large-cap U.S. companies within the Nasdaq U.S. Large Mid Cap Index that exhibit high degrees of sustainable shareholder yield. Specifically, the “shareholder yield” refers to the collective financial impact on a company’s shareholders from the return of free cash flow through cash dividends, stock repurchases and debt reduction.
The three components of shareholder yield are good measures for shareholder friendliness. The trifecta helps investors target companies with a history of dividend growth, low debt and the ability to support equity prices through share buybacks.
The shareholder yield ETF includes a diversified group of stable names like Hess Corp (NYSE: HES) 1.1%, Oceaneering Intl (NYSE: OII) 1.1%, Invesco (NYSE: IVZ) 1.0%, Western Refining (NYSE: WNR) 1.0% and Harley Davidson (NYSE: HOG) 1.0%.
Sector weights include financials 27.3%, industrials 18%, consumer services 13.6%, consumer goods 12.2%, technology 11.5%, oil & gas 6.5%, healthcare 5.9% and materials 5%.
[related_stories]PSET tries to reflect the performance of the Nasdaq U.S. Price Setters Index, which takes mid- and large-cap U.S. companies from the Nasdaq U.S. Large Mid Cap Index that exhibit high degrees of purchasing power. Essentially, these companies can raise prices of their products or services without experiencing diminished demand. Additionally, the components show consistent sales growth, high/stable margins, quality earnings, low leverage and high levels of profitability.
The price setters ETF’s top holdings include Affiliated Managers (NYSE: AMG) 1.1%, Skyworks Solutions (NasdaqGS: SWKS) 1.1%, United Parcel Service (NYSE: UPS) 1.0%, Water Corp (NYSE: WAT) 1.0% and Air Products & Chemicals (NYSE: APD) 1.0%.
Sector allocations include hefty tilts toward ares with relatively inelastic pricing, including 24.9% industrials 21.1% consumer goods, 15.3% health care, 14.4% consumer services, 12.9%, 6.5% technology 2.6% materials and 2.1% utilities.