Fears of a global economic slowdown saw the Dow Jones Industrial Average post five losing sessions in a row last week, which is a reminder to investors that the volatility that racked the markets in the fourth quarter of 2018 could return at any time. In 2019, investors are looking to play more defense against volatility, but at the same time, don’t want to do so at the expense of higher costs–this is where the Salt Low truBeta™ US Market ETF (CBOE: LSLT) comes into play.
Salt Financial LLC, a provider of data, ETF, and index products, announced the launch of LSLT on Wednesday, which uses the firm’s proprietary truBeta forecast. It’s essentially designed to target low volatility as well as beta stability–something all investors crave, particularly after a fourth quarter in 2018 that saw the Dow fall 5.6 percent, the S&P 500 6.2 percent and the Nasdaq Composite 4 percent.
“Small or large investors and advisors are attracted to more defensive equity exposure that targets lower volatility,” Alfred Eskandar, President & COO of Salt Financial LLC, told ETF Trends. “Low volatility investing in general has also performed well against the broader market historically and tends to carry a higher yield.”
At the heart of any fund is its strategy and for LSLT, it starts with risk assessment. The ETF tracks the Salt Low truBeta™ US Market Index, which gives exposure to US large and midcap equities with the opportunity for better risk adjusted returns.
“It starts with truBeta, our proprietary measure of market risk (beta),” said Eskandar. “A more accurate and responsive estimate of risk helps more consistently target low volatility stocks. The index methodology also tends to allocate more weight to Consumer Staples and less to Financials and Utilities, providing different exposure than some other low volatility strategies while still keeping an equally low risk profile.”
Furthermore, the index LSLT tracks has a lower PE ratio and a higher yield compared to some of the leading low volatility alternatives. As such, investors who are keen on lowering their market risk while maintaining exposure to US equities should find LSLT an attractive addition to their portfolio.
Paired with the existing Salt High truBeta US Market ETF (BATS: SLT), the company is giving investors the capability to target their desired levels of risk exposure in their portfolios. The funds, tracking the Low and High truBeta™ indices share a common selection universe and construction methodology. They begin by selecting components from the Solactive US Large and Midcap Index, which comprises a benchmark of the top 1,000 stocks in the US ranked by market capitalization.
Related: Salt Financial Debuts High Exposure ETF
This field of equities is further filtered by trading volume, helping minimize transaction costs in tracking the index while selecting from a broad range of more liquid US large and midcap stocks. The portfolios are equally weighted, sector capped, and then rebalanced quarterly.
The fund is launching with an expense ratio of 29 basis points. Although the fund filed a recent amendment covered by the press and in social media, the filing is pending review by the SEC.
Unless otherwise disclosed, the fund will operate at an expense ratio of 29 basis points, which comes at a discount for its smart beta strategy–a must for investors with a 2019 that could foresee volatile challenges ahead as market movers like trade wars and interest rates contribute to a wall of worry for investors.
However, with the ability to assess risk at an accurate clip, LSLT can help allay those fears for investors moving forward.
“Accuracy of our risk measurement–truBeta. With SLT and now LSLT, investors can target their desired level of risk more accurately, giving them a dial to better match risk to their portfolio objectives in a tax efficient, transparent, and liquid wrapper,” said Eskandar.
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