Nationwide Mutual Insurance Co. has stepped into the exchange traded fund game, launching three smart beta ETF strategies that try to help limit the negative effects of market volatility.
The insurance giant rolled out the Nationwide Risk-Based U.S. Equity ETF (NYSEArca: RBUS), Nationwide Risk-Based International Equity ETF (NYSEArca: RBIN) and Nationwide Maximum Diversification U.S. Core Equity ETF (NYSEArca: MXDU). RBUS has a 0.30% expense ratio, RBIN has a 0.42% expense ratio and MXDU has a 0.34% expense ratio.
The Risk-Based U.S. Equity ETF will try to reflect the performance of the R Risk-Based US Index, a rules-based, equal risk-weighted index designed to provide exposure to U.S. large-cap companies with lower volatility, reduced maximum drawdown and improved Sharpe ratio, compared to a traditional market cap-weighted index, according to a prospectus sheet.
The top 500 equity securities by market-cap are taken and are then subjected to a marginal risk contribution calculation based on the security’s volatility and correlation to other securities for the past year. Securities are then ranked by marginal risk contribution, and 50% of those with he lowest marginal risk contribution are selected.
The equally-weighted risk contribution methodology incorporates each constituent’s volatility and correlation to the other constituents for the past year to create a portfolio where each holding contributes the same level of risk, which should produce lower overall volatility of the index, a higher risk-adjusted return and diminish maximum drawdowns.