For Salvatore Bruno, Chief Investment Officer of IndexIQ, market cap weighted indices, although popular, are simplistic, and can deliver a significant drag on a portfolio when a fund’s constituents suffer from price deviation from their fundamental value.
That’s why IndexIQ, a New York Life Investments Company, today announced the launch of the IQ 500 International ETF (NYSEArca: IQIN).
IQIN tracks the performance, before fees and expenses, of the IQ 500 International Index, which was developed by IndexIQ and has a live track record dating from 12/31/07. All index components are headquartered outside the U.S. and are made up of common stock, not ADRs. The potential universe of constituent equities is ranked and weighted according to three fundamental factors; Sales, Market Share and Operating Margin.
Bruno told ETF Trends that the fund was a return to IndexIQ’s roots.
“We already have HFXI, which is our international 50 percent currency hedged ETF and that’s really straightforward market capitalization from the security standpoint,” he said. “The innovation there is a 50 percent currency hedge. We wanted to bring out a solution that goes a little bit beyond the market cap weighted and especially try to pick up some excess return while still maintaining exposure to large companies globally.”
Bruno said IQIN takes a different approach, looking at key fundamental factors and weighting the portfolio based on key metrics of relative strength and market position.
“The result is a solution that we believe delivers greater diversification across the international equity markets along with the potential to generate better risk-adjusted returns than traditional international investing approaches,” Bruno said.
“We define size based upon revenue as opposed to market cap because we’re trying to decouple price movements and momentums from the security selection and the ratings on big companies that are big because they have a lot of sales… because sales is the blood line of a company. That’s really what’s driving the company allowing them to do what they need to do on a forward basis.”
He added the ETF also looked to see if a company is in a leadership position in their sector and how their market share compares in their sector.
Mark Lacuesta, Director of Index Strategies with IndexIQ, added IQIN is an exciting addition to its international equity suite, which also includes the unique 50 percent currency hedged ETF family we brought to market in 2015.
“Our well-established research shows that stock selection based on fundamentals could be an important innovation as it decouples the linkage between a stock’s price and the underlying companies’ attributes,” Lacuesta said.
IndexIQ is a global provider of exchange-traded funds (ETFs), with a decade of offering highly differentiated and innovative long-term solutions to retail and institutional investors. Today, with assets under management of $4.1 billion, IndexIQ leverages the first-class asset management capabilities of New York Life Investments’ multi-boutique platform into its suite of offerings which include: fixed income, equities, alternatives and specialty asset classes.
For more new ETF launches, visit our New ETFs category.