IndexIQ has partnered with Chaikin Analytics to expand on its smart beta, factor-based exchange traded fund line up with its first domestic equity-focused strategy and a timely small cap play for the market environment ahead.
On Tuesday, IndexIQ launched the IQ Chaikin U.S. Small Cap ETF (NasdaqGM: CSML).
“We bridge the gap between active and passive investment,” Marc Chaikin, Founder and CEO of Chaikin Analytics, told ETF Trends in a call. “The strategy provides the best of active and passive investment.”
The IQ Chaikin U.S. Small Cap ETF tries to reflect the performance of the Nasdaq Chaikin Power US Small Cap Index, which applies a shareholder yield screen and the so-called Chaikin Power Gauge, a quantitative multi-factor model that tries to identify securities that are expected to outperform their peers, to select components from the Nasdaq US 1500 Index. The target focus will include small capitalization stocks.
“The Chaikin Power Gauge works because it incorporates several factors that institutional investors use everyday,” Carlton Neel, Chief Operating Officer at Chaikin Analytics, told ETF Trends.
Chaikin explained that after 2008, institutional investors required an unbiased way to make smarter and better investment decisions. Consequently, his analytic firm developed the power gauge methodology to sort out the best stocks in the current market environment.
The Chaikin Power Gauge is a 20-multi-factor model that screens for value, growth, technical and sentiment factors, such as price-to-book value, return-on-equity, free cash flow, price trends, relative strength, volume trend, earnings growth, earnings trends, projected price/earnings ratio, insider activity, short interest and earnings estimate trends. The gauge will identify each security’s ability to outperform market-weighted products and active strategies.
Salvatore Bruno, Chief Investment Officer at IndexIQ, argued that a small cap strategy like CSML could benefit investors in the market environment ahead, pointing to supporting factors like the small cap segment’s ability to outperform over periods of rising rates.
As rates rise and the U.S. dollar strengthens against foreign currencies, large-caps may also find overseas revenue taking a hit from the weakening foreign currencies. Alternatively, small caps with a domestic focus are less susceptible to currency risks.
Moreover, long-term investors have also enjoyed small cap exposure as these smaller companies tend to outperform other asset categories over the long haul.
“Small cap stocks have historically outperformed their large-cap counterparts over the long-term, and rebounded from market downturns at a quicker pace,” Bruno said. “Small caps also tend to be more domestically focused when compared to their multi-national large-cap counterparts, allowing them to be insulated from issues that impact revenues from overseas, such as a rising dollar. Therefore, we believe CSML will fit well as a core U.S. small cap equity position, as part of the science behind building smarter portfolios for investors.”
For more information on new fund products, visit our new ETFs category.