LeaderShares has entered the ETF space, launching its first strategy based on a multi-factor approach that seeks out historical drivers of outperformance.
LeaderShares ETFs recently rolled out LeaderShares AlphaFactor US Core Equity ETF (NYSEArca: LSAF), which has a 0.75% expense ratio.
“LeaderShares ETFs seek to deliver a differentiated quantitative systematic approach to investing. More specifically, quantitative process are used to seek to identify leading characteristics that can define the risk and return of an investment,” according to LeaderShares.
The LeaderShares AlphaFactor US Core Equity ETF tries to reflect the performance of the AlphaFactor US Core Equity Index, which uses a quantitative rules-based investment methodology that applies a multi-factor ranking process on the largest 1,000 U.S. company stocks, according to the fund’s prospectus.
Smart Beta ETF Methodology
Specifically, the methodology selects stocks based on a number of characteristics that include net share count reduction, free cash flow growth, and debt/asset ratios. The final screen is based on market characteristics including liquidity and market capitalization.
“Our findings are that persistent quantifiable advantages exist in capital markets and continue to exist provided that they are not exploited by a large number of market participants. Our focus is on quantitative investment strategies that are defined by critical elements that can be identified as historical drivers of outperformance. Especially in an age where many other quantitative firms are focused on ‘the more data the better’, we believe it is more important to sort through the noise. We implement our strategies using a disciplined, systematic methodology,” according to LeaderShares.
LSAF implements an “AlphaFactor” quantitative methodology as opposed to traditional smart beta factors that have grown in popularity such as momentum, value, volatility, and size are predominantly price driven. LeaderShares argued that the greater market adoption of these smart beta factors has introduced price impact, which in turn can impact the alpha opportunity. On the other hand, AlphaFactor strategies try to implement price agnostic analysis, like supply and demand, to provide market exposure with a differentiated approach.
For more information on new fund products, visit our new ETFs category.