Smart Beta Channel

Dynamic Market Exposure, Risk Management with Smart Beta ETFsAs the industry evolves with a new breed of alternative index-based smart beta exchange traded fund strategies, investors are able to gain more targeted exposure and potentially better manage market risks.

ETF Trends publisher Tom Lydon spoke with Keys Tinney, CEO and Founder of Blue Sky Asset Management, at the Inside ETFs conference that ran Jan. 22-25, 2017 to talk about their new line of smart beta index ETFs.

“We have to aspects of the fund family: One is risk managed product line that is a combination of four different funds that give you primarily risk managed exposure to various asset classes. And then another one which e have launched as a dynamic beta product that give you more of an asymmetric return profile.”

Northern Lights recently came out with the QuantX Risk Managed Multi-Asset Income ETF (BATS: QXMI), QuantX Risk Managed Multi-Asset Total Return ETF (BATS: QXTR), QuantX Risk Managed Real Return ETF (BATS: QXRR), QuantX Risk Managed Growth ETF (BATS: QXGG) and QuantX Dynamic Beta US Equity ETF (BATS: XUSA), which are sub-advised by Blue Sky Asset Management.

“The risk managed funds operate more as a total portfolio solution,” Tinney said. “So we have a global equity, real asset, multi-asset income, total return and so when you combine those things together, along with the risk management that it provides in in the drawdown protection that it provides, really gives a good portfolio for the clients.”

The five ETFs incorporate various proprietary strategies from Blue Sky Asset Management, which were originally developed over the past several years and previously only available to investors in a separate account. The dynamic, quantitative approach provides for a more rapid response to changing markets, while filtering out the emotions that can have a negative impact on decision-making.

Specifically, XUSA follows a type of dynamic beta strategy while QXMI, QXGG, QXRR and QXTR take a risk-managed approach.

The Dynamic Beta US Equity ETF selects large- and mid-cap stocks taken from the Russell 1000 but includes a screening process designed to increase exposure to those that have the highest estimated upside volatility relative to downside volatility.

The “Risk Managed” ETF line incorporate Blue Sky’s “Dynamic Asset Allocation” to provide exposure to key asset classes while optimizing cash and fixed income holdings to manage downside risk. Consequently, the underlying indices have the ability to move their entire portfolios to cash or fixed income instruments to diminish downside risk.

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