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Vesper Launches a Large-Cap Contrarian ETF

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Vesper launched its first ETF Vesper U.S. Large Cap Short-Term Reversal Strategy ETF UTRN on Sep 21 that seeks to take advantage of a trading anomaly called short-term reversal. It utilizes a proprietary methodology — Chow ratio — which identifies firms that are about to see a weekly rebound. It combines short-term pricing and volatility data with standards to assess the financial soundness of a company.  

“UTRN ranks stocks in the S&P 500 based on the Chow Ratio, choosing 25 stocks with the most attractive (lowest) chow ratio score for inclusion in the index each week. A stock is only removed from the portfolio on rebalancing if another stock has a lower value,” says John Thompson, President of Vesper Capital Management (see: all the Large-cap ETFs).

Inside UTRN

It tracks the Vesper US Large Cap Short-Term Reversal Index. This equal-weighted index, which is calculated by S&P Dow Jones Indices LLC on a weekly basis, includes 25 S&P 500 stocks that have the potential to benefit from the short-term reversal effect. Top five holdings of this ETF are Andeavor ANDV (with 4.21% weight), Motorola Solutions MSI (4.19%), Twenty-First Century Fox (FOXA - Free Report) (4.07%), Twenty-First Century Fox FOX (4.07%) and Sysco Corp SYY (4.02%).

“We believe UTRN is the first mainstream investment product to attempt to capitalize on this phenomenon,” Thompson said. “UTRN’s goal is to outperform the major market large-cap indices while incurring less volatility.” (Read: Want Large Caps & Guard Against Trade War Too? Play These ETFs)

Since its inception, the fund has amassed $2.5 million and has expense ratio of 0.75%.

How Does It Fit in a Portfolio?

The strategy adopted by this fund assumes above-average risk with potential for high alpha generation. There is a problem in market-cap weighted cap indexes like S&P 500 as it could overweigh stocks that have earned impressively of late, leading to overconcentration on a few stocks.

Equal weighted ETFs like UTRN can solve this problem as these are balanced frequently (weekly). It is a part of factor or smart beta methodology that allows investors to earn steady risk adjusted returns rather than traditional indexes which are market capped. Yet this strategy has hardly been “discovered”: U.S. equal-weight ETFs had total net assets of $46.6 billion as of August, only 1.25% of the $3.7 trillion invested in all U.S. domiciled ETFs, according to Morningstar Direct.

The press release cites examples which may cause volatility in stocks at the micro-level like companies being called to Washington DC to testify to a Grand Jury, unplanned succession news, sexual harassment claims against a senior executive, product recalls, or a Twitter storm involving the company and the same can be at a macro-level like interest rate hikes and trade tensions (see: Bank ETFs in Focus as Rates Rise).

This is where the Chow ratio methodology helps generate returns which could be missed going by news and sentiments. The fund follows rules-based short term contrarian strategy based on a 50+ years of academic research which systematically churns out fundamentally strong companies who faced a temporary shock due to some micro or macro level news and invest in them when the markets have stopped looking at them


There is no direct competition for UTNR as it has a unique strategy to generate returns for its investors. However, large-cap counterparts like SPDR S&P 500 ETF SPY and iShares Core S&P 500 ETF IVV tracking the S&P 500 index might pose competitive threat. SPY and IVV have expense ratios of 0.09% and 0.04%, respectively.

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