Every year, hundreds of new exchange traded funds come to market. Some take awhile to catch on with investors. Others never gain traction while some are fortunate enough to be successful right off the bat. Put the Principal U.S. Mega-Cap Multi-Factor Index ETF (NasdaqGM: USMC), which debuted in October, in the immediately successful category.
The new U.S. Mega-Cap Multi-Factor Index ETF tries to reflect the performance of the Nasdaq U.S. Mega Cap Select Leaders Index, which is comprised of companies with the largest market capitalization taken from the Nasdaq U.S. 500 Large Cap Index and screened based on a quantitative model. USMC is a multi-factor fund, an increasingly popular strategy within the broader smart beta universe.
“You’re going to be hearing a lot more about multi-factor ETFs in the coming years as a potential bridge between passive indexes and true active management,” according to ETF Daily News. “The basis behind this strategy is to score and rank a universe of stocks based on numerous criteria such as quality, value, momentum or volatility. The index will then continually evaluate and rebalance its holdings based on the changing landscape of stock fundamentals and performance.”
USMC’s strategy immediately proved appealing to investors.
“USMC which debuted in October and has been seeded with over $500 million of investor capital. USMC charges an extremely reasonable 0.12% expense ratio and is geared towards identifying a narrow universe of mega-cap stocks,” reports ETF Daily News.
Importantly, USMC has continued growing. As of Dec. 12th, the ETF had $640.2 million in assets under management. USMC is home to 54 stocks.
The mega-cap companies are taken from the top 50th percentile from the Nasdaq U.S. 500 Large Cap Index. As of September 22, the market capitalization range of companies in the index was between approximately $83.9 billion and $784.6 billion.
USMC’s underlying index utilizes a modified equal-dollar weighting methodology where securities in the top 10% of aggregate market capitalization are weighted by market-cap, but the remaining securities are equally weighted and volatility adjusted to give a higher tilt toward those that are more liquid and less volatile.
Top 10 holdings in USMC include Apple Inc. (NASDSQ:AAPL), Johnson & Johnson (NYSE:JNJ), Google parent Alphabet Inc. (NASDAQ:GOOG) and Microsoft Corp. (NASDAQ:MSFT).
For more information on new fund products, visit our new ETFs category.