Legg Mason has added its first small capitalization-stock exchange traded fund to its suite, incorporate Royce & Associates proprietary research to help investors one in on smaller companies that exhibit quality and value factors.
On Thursday, Legg Mason launched the Legg Mason Small-Cap Quality Value ETF (NasdaqGM: SQLV). SQLV has a 0.60% expense ratio.
“SQLV is designed for investors seeking growth of capital through strategic multi-factor, small-cap exposure in an ETF wrapper,” according to Legg mason.
The Small-Cap Quality Value ETF tries to reflect the performance of the Royce Small-Cap Equity Value Index, which is comprised of small-cap companies with lower than average valuation, higher than average profitability and higher than average debt coverage, according to a prospectus sheet.
Underlying components are screened using Royce’s rules-based multi-factor scoring system to identify companies with favorable quality and value attributes.
For quality factors, the underlying index focuses on a company’s profitability, the historic stability of its profitability and debt coverage. For value factors, the index focuses on the free cash flow of a company compared to its enterprise value.
Furthermore, each security’s momentum score, which is based on the price performance over the most recent 30 days, is used to determine the timing of the addition or deletion of the security. Position weights are then calculated using a composite score based on company fundamentals that include book value, revenue, free cash flow, and dividends paid.
“By using fundamental factors to weight stocks rather than market capitalization, the Underlying Index seeks to have lower exposure to overvalued companies, while still maintaining broad diversification,” according to Legg Mason.
For more information on new fund products, visit our new ETFs category.