A Trend-Following Smart Beta ETF Strategy

“The Index is developed based primarily on a risk-parity approach, which focuses on an allocation of risk rather than an allocation of capital,” according to the prospectus. “The Fund uses risk parity to seek to construct a portfolio with less volatility and risk. As of March 1, 2017, the Index was weighted as follows: 22.27% in the ValueShares U.S. Quantitative Value ETF; 25.33% in the ValueShares International Quantitative Value ETF; 24.79% in the MomentumShares U.S. Quantitative Momentum ETF; 27.61% MomentumShares International Quantitative Momentum ETF; and 0% in cash and cash equivalents.”

In downtrending markets, the underlying index may hedge up to 100% of the value of its long portfolio by shorting a representative broad based U.S. securities index ETF when either one or both conditions are met: First, the U.S. equity markets’ total return over a rolling twelve calendar month period is less than or equal to U.S. Treasury bill returns over the same period. Second, the U.S. equity markets’ twelve month moving average exceeds current price.

There is a 50% weight to each rule. If both are triggered, the index’s U.S. equity portfolio will be fully hedged. If one rule is triggered the index’s U.S. equity portfolio will be 50% hedged. Otherwise, the index’s U.S. equity portfolio will have no hedge.

The same hedging methodology is applied with its international portfolio.

For more information on new fund products, visit our new ETFs category.