Smart-beta ETFs have long investors’ choice. But issuers seem not so happy with them as Global X recently tuned up the concept and launched four ‘scientific beta’ ETFs. Value, Size, Momentum and Low Volatility are the key criteria that the stocks should score higher on to get a place in the index. To add to this, these ETFs are equal-weighted in nature.
These funds intend to outperform traditional indexes by following ‘academically driven multi-factor indexes developed by ERI Scientific Beta’ per the source. We detail below these multi-factor ETFs (read: These Smart-Beta ETFs Survive Market Volatility).
Global X Scientific Beta US ETF ((SCIU - Free Report) ) in Focus
The U.S. markets are troubled by mixed economic data points and baffled by rate hike worries. So a scientific beta approach in stock picking as stated by SCIU might help investors wait out volatility (read: Three Global Low Volatility ETFs Debut from iShares).
The newly launched ETF looks to track the performance of the Scientific Beta United States Multi-Beta Multi-Strategy Equal Risk Contribution index. The fund currently holds 483 stocks. Sector wise, Financials dominates the fund with 18.2% allocation, while IT (15.7%) and Health Care (14.0%) occupy the next two spots. The fund is low on Telecom.
The fund has very low company-specific concentration risk with no single stock occupying more than 0.80% of the total. The fund charges 35 basis points as fees.
Competition: The space is crowded with products such as Large Cap Core AlphaDEX Fund (FEX - Free Report) , MSCI USA Minimum Volatility ETF (USMV) and MSCI USA Minimum Volatility ETF (IELG) on the large-cap surface being the likely competitors.
Global X Scientific Beta Europe ETF ((SCID - Free Report) ) in Focus
Europe has managed to take hold of all investor attention since the start of 2015 given the ECB’s launch of the QE program and the continent’s record-low interest rate environment. SCID targets the developed Europe (read: 3 European ETFs Seeing a Surge in Interest.
The fund seeks to track the Scientific Beta Extended Europe Multi-Beta Multi-Strategy Equal Risk Contribution Index to provide European equity exposure. The fund holds a portfolio of 571 stocks from Europe. No stock forms more than 0.60% of the total fund assets.
Britain is the top country holding of the fund with about 32.7% exposure followed by 13.1% in France and 9.9% in Switzerland.
Sector wise, once again, Financials dominates the fund with 26.1 % allocation, while Industrials (17.1%) and Consumer Discretionary (13.4%) occupy the next two spots. The fund is light on IT (3.9%) and Energy (2.5%) and charges 38 bps in fees.
Competition: Like the U.S. ETFs, this space is also teeming with products. Here, Diversified-Factor Developed Europe Index Fund (SBEU) and iShares MSCI Europe Minimum Volatility ETF (EUMV) pose as tough competitors.
Global X Scientific Beta Japan ETF ((SCIJ - Free Report) ) in Focus
Japanese stocks are soaring near multi-year highs on intense monetary easing. The Central Bank increased its asset buying program to 80 trillion yen a year in October 2014 from the prior rate of 60–70 trillion yen to push a sputtering economy. So, tapping the Japan ETF in a scientific manner would be a great option.
The fund is made up of 473 components. However, no other stock makes up over 0.91% of the basket. Sector wise, Industrials dominates the fund with 20.2% allocation, while Financials (17.7%) and Consumer Discretionary (15.8%) occupy the next two spots. The fund charges 38 bps in fees.
Competition: There are plenty of ETFs on Japan – any of which could be a strong peer. Japan AlphaDEX Fund (FJP) and SPDR MSCI Japan Quality Mix ETF (QJPN) are to name a few (read: Nikkei Hits fresh 15-Year High: 3 Japan ETFs to Buy).
Global X Scientific Beta Asia ex-Japan ETF ((SCIX - Free Report) ) in Focus
This fund takes into account all Asian equities except Japan. Many nations in this region are flourishing on easy money and thus offer reasonable investment opportunity. The fund charges 38 bps in fees.
Sector wise, once again, Financials dominates the fund with 27.4% allocation, while Industrials (17.1%) and Consumer Discretionary (15.7%) get double-digit weight. Hong Kong holds the highest weight with over 33.8% exposure followed by 24% occupied by Australia and 23.3% by South Korea. The top holding of the 380-stock fund gets just 0.98% exposure.
Competition: The space is less jam-packed compared to other categories. Still a product like iShares MSCI Asia ex Japan Minimum Volatility ETF (AXJV) can give the newly launched fund some tough competition.
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