An ETF Tapping into the Entrepreneur Factor to Enhance Returns

Investors may potential enhance returns through an entrepreneur-focused exchange traded fund strategy that identifies companies with a pioneering spirit.

The Entrepreneur 30 Fund (NYSEArca: ENTR), which is comprised of 30 U.S. companies with the highest market capitalizations and composite scores based on six criteria referred to as entrepreneurial standards, has exhibited excess return potential by taking into consideration factors that account for alpha generation, such as growth, size, momentum and value, among others.

“Investors, or academics, that presume we are simply a ‘growth play’ or ‘momentum play’ are often surprised to discover that our Entrepreneur Factor is not only significant in explaining historical returns, but over the past 12 years has been, by far, the most significant factor,” according to EntrepreneurShares. “The selection effect (Entrepreneur Factor) actually compensates for all the other factors, which in aggregate are actually negative during the time period. This is why the selection effect is even higher than the excess return itself.”

The factors screened include management, which requires set factors such as the turnover among the top five executives within a company as compared to other companies in the broader universe must be met.

The compensation screen covers annual compensation, salary, bonus, stock options and other compensation criteria be met for a company to be included, including, among other things, that the executive compensation among the top five executives of a company relative to comparable executives in similar companies in the broader universe must be met for the company to be included.

The revenue screen requires a company meet predetermined criteria regarding revenue over a static threshold to be included, like the amount and growth of revenue of a company.