Author: Aaron Neuwirth

USVM – ETF of the Week: VictoryShares USAA MSCI USA Small Cap Value Momentum ETF (USVM)

ETF Trends CEO Tom Lydon discussed the VictoryShares USAA MSCI USA Small Cap Value Momentum ETF (USVM) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.

The fund seeks to provide investment results that closely correspond, before fees and expenses, to the MSCI USA Small Cap Select Value Momentum Blend Index performance. The Index is designed to deliver exposure to equity securities of small-capitalization U.S. issuers with higher exposure to value and momentum factors while also maintaining moderate turnover and lower realized volatility than traditional capitalization weighted indexes.

USVM is a great play that ticks all the boxes for the current market environment. The fund helps investors focus on small capitalization stocks that benefit from the early economic recovery stages. It captures the shift toward the value style, notably those that have been enjoying rising momentum.

The Russell 2000 has outperformed the S&P 500 by the widest margin for the first two months of the year since 2000. There’s still a lot of ground that small-caps can make up, given that they’ve lagged for most of the previous bull expansion. Even with the recent outperformance, small caps are still a good ‘value’ play, with a price-to-book ratio well below their large cap peers.

The dominance in the U.S. large cap growth style over the years has contributed to this category’s pricier valuations. Additionally, the U.S. large cap growth was the best style in six of the past seven years, and SPY has been in the top three performers for five of the past seven years as well.

Small capitalization stocks have been outperforming in anticipation of greater fiscal spending from the Biden administration. Given the latest $1.9 trillion relief package and another planned $3 trillion in infrastructure spending, many are growing more optimistic over the broad economic recovery with accelerating vaccination rollouts, accommodative Federal Reserve monetary policy that will keep interest rates near zero for a few more years.

Recovery Phase of the Traditional Economic Cycle

Smaller companies are more sensitive to changes in the domestic economy than their larger peers, which also have a large international footprint. Economically sensitive sectors like energy, materials, and banking also make up a greater portion of the small-cap segment than larger indexes. Once pummeled, cyclical sectors are now attracting bargain hunters betting on a broader recovery.

Value stocks have strong current cash flows that will slow over time, while growth stocks have little or no cash flow today but are expected to increase gradually. When valuing stocks using the discounted cash flow method, in times of rising interest rates, growth stocks are negatively impacted far more than value stocks. Since interest rates are usually increased to combat high inflation, so in times of high inflation, growth stocks will be more negatively impacted. This suggests a positive correlation between inflation and the return on value stocks and a negative one for growth stocks.

Momentum is the rate of acceleration of a security’s price or the speed at which the price is changing. Momentum trading is a strategy that seeks to capitalize on momentum to enter a trend as it is picking up steam. This refers to the inertia of a price trend to continue either rising or falling for a particular, usually taking into account both price and volume information. Based on the idea that “the trend is your friend,” betting on high-flying stocks to fly even higher

In this instance, it is a play on small-cap value stocks and the momentum behind this asset category. Academic research suggests that focusing on stock companies with factors like attractive valuations and improving momentum has led to higher excess returns.

USVM identifies stocks with attractive valuations and positive price momentum and weighting the two factors in such a way to help investors diversify against the risk of individual holdings. If done properly, combining value and momentum can help reduce exposure to value traps–stocks that look cheap but have deteriorating fundamentals. It might also reduce exposure to frothy areas of the market.

Listen to the full podcast episode on the USVM:

For more podcast episodes featuring Tom Lydon, visit our podcasts category.

BDRY – ETF of the Week: Breakwave Dry Bulk Shipping ETF (BDRY)

ETF Trends CEO Tom Lydon discussed the Breakwave Dry Bulk Shipping ETF (BDRY) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.

BDRY provides long exposure to the dry bulk shipping market through a portfolio of near-dated freight futures contracts on dry bulk indices. It’s the first and only freight futures exchange-traded product exclusively focusing on dry bulk shipping. The fund is a pure-play exposure to dry bulk shipping, an instrumental part of the global commodity market, uncorrelated to other major assets. It’s designed to profit from increases in freight futures beyond what is already priced in the market.

The Suez Canal debacle has highlighted the importance of global maritime trade and a way for investors to access this market. BDRY jumped 10% on the day the Suez Canal blockage was announced. Even before the canal logjam, BDRY gained +150% year-to-date on the improving global economic outlook as economies reopened and trade resumed.

What Happened With The Suez Canal?

A 400-meter (430-yard) long Ever Given container ship blocked all traffic on one of the world’s busiest shipping arteries. The 120-mile Suez Canal connects the Red Sea to the Mediterranean and is a key route for oil and gas tankers. Around one-tenth of the all-seaborne oil trade around the world goes through the canal.

The Suez Canal is obviously a very significant part of the global shipping market, as it reduces the distance that ships have to travel between Asia and Europe/N America. With a ship stuck in the canal, any container ships would have to go around the southern tip of Africa. Re-routing ships around the Cape of Good Hope off South Africa’s coast could add around two more weeks to a voyage. Doing so would add more than 800 tonnes of fuel consumption for Suezmax tankers — the largest-sized ships which can travel through the Suez Canal.

Fuel is a ship’s single biggest cost, representing up to 60 percent of operating expenses. The blockage added another setback for the global supply chain, which has already been strained by the coronavirus pandemic. The closure of the Suez Canal caused a major issue in the logistics of shipping, causing ships to divert, wait longer, or get stuck. Any problems with the Suez Canal are positive for shipping rates since disruptions in shipping tend to push shipping rates higher.

Fundamentals for dry shipping were already favorable. The Suez Canal incident was just icing on the cake. Shipping rates for oil product tankers have nearly doubled after the ship ran aground in the vital trade waterway. The suspension of traffic through the narrow channel linking Europe and Asia has deepened problems for shipping lines that were already facing disruption and delays in supplying retail goods to consumers.

As noted, BDRY is designed to profit from increases in freight futures beyond what is already priced in the market. The fund is designed to reduce the effects of rolling futures contracts by using a laddered strategy to buy contracts while letting existing positions expire and settle in cash.

Listen to the full podcast episode on the BDRY:

For more podcast episodes featuring Tom Lydon, visit our podcasts category.

UMI – USCF and Miller-Howard Launch a New Midstream Energy ETF, ‘UMI'

On Wednesday, USCF today announced the launch of the USCF Midstream Energy Income Fund (UMI) with sub-adviser Miller/Howard Investments, a Woodstock, NY-based, research-driven portfolio management firm. UMI, an actively-managed ETF, will apply Miller/Howard’s hallmark bottom-up fundamental research to midstream energy infrastructure companies focused on energy transportation, storage, and gathering/processing.

The Miller/Howard investment philosophy emphasizes income-producing equities as essential elements to building long-term wealth. Dividend income from high-yielding sectors like midstream energy can be used to fund current spending needs or, when reinvested, to drive the power of compounding to grow wealth over time. Miller/Howard has integrated environmental, social, and governance (ESG) analysis with fundamental research since its first strategy in 1991.

“USCF was founded on the principle of bringing previously difficult to access asset classes to every investor,” said John Love, President and CEO of USCF. “UMI introduces the midstream energy market to our investors thoughtfully by not only seeking a high level of income but also offering exposure to master limited partnerships (MLPs) without a K-1.”

Yes, ESG Is Now in Energy

UMI is the first collaboration between USCF and Miller/Howard and illustrates how it is possible to invest in the energy sector while considering ESG attributes.

Miller/Howard’s research and analysis focuses on the quality of a company, its ability to grow income, and the sustainability of its business model and practices. In the unique case of MLPs, where traditional avenues for shareholder engagement and proxy voting are unavailable, Miller/Howard has written two Open Letters to MLP/Midstream Management Teams calling for them to address key issues ESG issues identified by investors. Miller/Howard is also dedicated to dialogues with MLP and midstream companies, with recent initiatives focused on environmental management, board gender diversity, and disclosures around executive compensation.

“We are excited to enter the ETF arena with our new collaborators, USCF,” said Luan Jenifer, President of Miller/Howard Investments. “This new Fund utilizes the established methods that Miller/Howard has effected to bring the midstream energy sector, including MLPs, to investors more broadly and without a K-1.”

“Our team is thrilled with the opportunity to work alongside Miller/Howard,” added Love. “We feel that their perspective and approach to midstream energy is refreshing and beneficial to the space.”

For more information, please visit www.uscfinvestments.com and www.mhinvest.com, and be sure to check out their upcoming “Midstream Marvels: An ETF Strategy for the Low-Rate Landscape” webcast here.

SYUS – Syntax Advisors Launches New Stratified Weight ETF, ‘SYUS'

On Friday, Syntax Advisors, LLC announced the launch of the Syntax Stratified U.S. Total Market ETF (SYUS), available for trading on NYSE Arca. SYUS launched with $21M in AUM, and it marks the fourth and latest ETF in Syntax’s expanded family of Stratified Weight funds.

Syntax offers an innovative alternative to cap weighted index products through a full suite of Stratified Weighted ETFs covering the S&P 500, S&P 600, and S&P 400 indexes and the U.S. Total Market. Stratified Weighting is designed to maintain diversified business risk exposure and capture a fuller range of market opportunities for investors.

Syntax’s investment approach (“Stratification”) was developed over a 10-year period and is based on a significant re-evaluation of cap weighted indexing. In recent years, this traditional approach has resulted in the over-concentration in many portfolios of a small group of large cap companies (i.e., FANGS) in a similar industry (i.e., technology).

Syntax takes the world’s most widely used index benchmarks and reweights them to reflect diversified business risk across numerous industries. Instead of concentrating on the largest companies and the most popular sectors, Syntax’s patented process determines the common risks companies and industries face, then equally divides these stocks within carefully defined segments. This process seeks to provide investors with more balanced exposure across available business opportunities while still engaged in indexing.

Syntax Advisors LLC provides investors with rules-based, diversified exposure to business risks via products that track Syntax Stratified Weight Indices, including the Syntax Stratified LargeCap ETF (SSPY)Syntax Stratified MidCap ETF (SMDY), and the Syntax Stratified SmallCap ETF (SSLY).

For more information, visit www.syntaxadvisors.com

For more market trends, visit ETF Trends.

CXSE – ETF of the Week: WisdomTree China ex-State-Owned Enterprises Fund (CXSE)

ETF Trends CEO Tom Lydon discussed the WisdomTree China ex-State-Owned Enterprises Fund (CXSE) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.

CXSE seeks to track the WisdomTree China ex-State-Owned Enterprises Index’s price and yield performance, which is a modified float-adjusted market cap-weighted index that consists of common stocks in China, excluding common stocks of “state-owned enterprises.” Chinese companies that are not state-owned enterprises are defined as government ownership of greater than 20%.

The fund is a tailored emerging market play that cuts out inefficient state-owned businesses. In regards to state-owned enterprises, government ownership can negatively impact the operational efficiency of a company. Government-owned and influenced companies typically run their businesses with a broader set of interests, appealing more to government wishes than generating the maximum possible return for shareholders.

For example, China state-owned companies may be targeting full employment to help the citizens’ cost of living at the expense of shareholders. Over time, these influences can lead to quite large but fairly inefficient businesses, and they may have the potential of stagnating the long-term growth potential of these companies.

How Do SOEs Stake Up?

If shareholder returns and fundamentals such as return on equity (ROE) are not the top priority of these SOEs, it would be seen in things like greater risk or lower overall performance. According to WisdomTree data, non-SOEs generated an average 10-year annualized return of 14.2%, compared to SOEs’ 1.4% average 10-year return. Over 1-year ended December 2020, non-SOEs generated a 33% return, compared to a -6.7% return among SOEs.

If SOEs are being mismanaged in ways that do not put shareholders’ interest first, it would show up in some fashion through either “lower quality” or “less efficient” fundamental metrics. One way to highlight this would be to view some of the fundamental metrics across time, such as return on assets (ROA) and ROE. The non-SOEs have had a distinct advantage since 2007, and the difference between SOEs and non-SOEs also appears to be widening during the most recent time frames.

Searching for more innovative exposures, watch the rise of “new economy” sectors among non-SOEs. Looking at the MSCI China Index, growth of the Information Technology and Consumer sectors over time has contributed to increased weights of non-SOEs. It is no coincidence that these“new economy” sectors have been among the key drivers of broad EM returns and overall growth of the market, as some of the more traditional, “old economy” sectors, such as Energy and Financials, have lost market share and continue to be the largest sectors of SOEs.

ESG Enhancement

Securities that are noncompliant with international norms and standards, such as the Global Standards Screening (GSS) guidelines or are involved in Controversial Weapons, Tobacco, or Thermal Coal activities, as identified by 3rd party ESG data providers, will be removed from CXSE’s underlying index.

CXSE already has an ESG tilt given its focus on governance. The additional ESG screens, therefore, will have a minimal impact on the overall portfolio. As of January 19th, 2021, no securities will be removed from the WisdomTree China Ex-State-Owned Enterprises Fund, as the constituents of the Index tracked by this fund already meet the specified ESG criteria.

Listen to the full podcast episode on the HART ETF:

For more podcast episodes featuring Tom Lydon, visit our podcasts category.

DIVZ – TrueMark Launches Low Volatility Equity Income ETF, ‘DIVZ'

On Thursday, Rosemont, IL-based asset manager TrueMark Investments and Titleist Asset Management launched the TrueShares Low Volatility Equity Income ETF (DIVZ).

DIVZ seeks to provide an actively managed, concentrated portfolio comprising 25 to 35 favorably valued companies with attractive dividends that the portfolio managers expect to grow over time. The portfolio is designed to deliver lower volatility and higher dividends than the overall market while still providing investors with capital appreciation opportunities.

“We’ve been anticipating the listing of DIVZ for quite some time,” said Michael Loukas, CEO at TrueMark Investments. “The investment philosophy clearly reflects what we believe income-focused equity investing should look like in 2021. With an emphasis on valuations and an understanding that dividend-paying companies tend to be established businesses with high cash flows and steady revenue streams, DIVZ is well-positioned to provide exposure to high-quality companies while allowing investors access to stable, growing income streams as well as the opportunity for capital appreciation.”

Loukas continues, “With interest rates at historic lows and a divergent market that has seen growth stocks soar but leave blue chip stocks behind, there is a rare opportunity to deliver high quality, dividend-paying names at deep discounts to investors. DIVZ has been created to provide not only an attractive, growing source of income but also the potential for long term capital appreciation with lower than average volatility.”

Sub-advised by Titleist Asset Management, DIVZ’s portfolio management is led by Austin Graff, who has a proven track record of managing dividend-focused strategies.

“We thoroughly analyze the financial health of companies in our investment universe to identify potential investments with above-average dividend yields, sustainable dividend growth, and long-term capital appreciation potential,” said Graff.

“Dividends have historically been important contributors to total return, so we put DIVZ together with an emphasis on dividends. The portfolio goals include attractive growing dividends, long-term capital appreciation, and less volatility than the overall market, a combination that we believe will prove attractive to investors that are focused on risk-adjusted returns.”

Digging Into DIVZ

As far as what the companies look to accomplish, Loukas added, “The TrueShares ETF line-up has never been about chasing down every investment trend and niche sector in the industry.  As a company, we focus solely on areas where we believe our expertise can create long-term value for investors.  As seen with LRNZ, ECOZ, or the Structured Outcome Series, our sub-advisor selection process is a testament to that.   Austin Graff and Titleist Asset Management are well suited to continue our mantra of delivering specialized investment acumen to an area of need in the marketplace.  DIVZ addresses a specific pain point, which is how to obtain yield and reduce volatility without sacrificing the growth potential.”

Loukas continued, “We believe the market currently underappreciates many blue-chip dividend-paying companies.  Companies with stable businesses that generate significant and consistent free cash flows are trading at a discount. These stocks are inherently low duration assets. With interest rates at all-time lows, longer duration assets receive the majority of investor attention in today’s market. Eventually, policies supporting monetary easing and economic growth will likely cause interest rates to go up. As this takes place, we believe it will be in investors’ best interest to be in a portfolio like DIVZ.”

DIVZ begins with a universe of U.S. equities with above-average dividends versus the S&P 500. The fund focuses on companies with market caps greater than $8 billion but can potentially include mid- and small-caps as well. DIVZ leverages fundamental research, competitive analysis, and meeting with company management to identify companies with above-average dividend yield, sustainable dividend growth, and attractive valuations. Additionally, DIVZ’s expense ratio is 0.65%.

Finding Potential Over Drawbacks

Looking at the concern for overlooked drawbacks to popular passive index-based dividend funds, Loukas explains, “Most passive indices either have a low dividend that is growing with similar volatility to the market or a high dividend with the risk of declining. DIVZ is positioned to provide both an attractive dividend today and dividend growth over time.  Our focus on a concentrated portfolio of quality companies at attractive valuations also reduces volatility as it decreases the probability of being invested in value traps that have high dividends for the wrong reasons.

Loukas has even more to say when discussing what sectors offer the best dividend-growth potential looking ahead, noting, “We like healthcare and financials.  Many pharmaceutical companies also have significant free cash flows and a history of rewarding investors with attractive dividend growth.  We don’t see that changing anytime soon.  Banks are particularly attractive because regulators restricted dividend growth and incentivized management teams to build reserves in 2020 until the pandemic’s ramifications could be fully appreciated.  Now that we appear to be exiting the pandemic induced recession, banks are expected to regain freedom over capital allocation and will likely have significant excess reserves which will be distributed through buybacks and dividend increases in 2021 and beyond.”

Finally, when considering how the new Low-Volatility Equity income ETF fits into existing portfolios, Loukas states, “For investors seeking alternative sources of income, or that are just worried about current market valuations, DIVZ has the potential to be a core holding in many portfolios.  First, it provides a less interest rate sensitive source of income (low duration) that is expected to grow over time, helping solve the income problem that many investors face today.  Second, by owning stable blue-chip companies that generate a lot of free cash flow and currently trade at a discount, we believe the portfolio is well-positioned to outperform through a market cycle.  We believe income and long-term capital appreciation with lower relative volatility are two characteristics that have peaked investor interest in the current market.”

For more information, visit www.true-shares.com/divz.

For more market trends, visit ETF Trends.

WWOW – Direxion Launches World Without Waste ETF, ‘WWOW'

Thursday has brought the first ETF focused on exposure to a more ESG-based economy. Direxion officially announced the recent launch of the Direxion World Without Waste ETF (WWOW). WWOW invests in 50 companies at the forefront of the move to a circular economy from a linear one.

Until recently, the ‘take-make-consume-waste’ of resources within a linear economy has prevailed. Raw material transformed into a product, and after its utility was over, its lifecycle ended, and it became waste. Alternatively, the regenerative framework provided by a circular economy affords companies the ability to address environmental and sustainability priorities, drive innovation, and push for competitiveness while generating growth.

“Investors have embraced ETFs with exposure to renewable and alternative sources of energy, but a circular economy encapsulates a far broader range of companies,” said David Mazza, Managing Director at Direxion. “WWOW is the first US-listed fund providing direct exposure to companies helping to make a world without waste.”

WWOW seeks investment results, before fees and expenses, which track the Indxx US Circular Economy Index. The Indxx US Circular Economy Index tracks the performance of 50 US-listed companies that are representative of the transformative shift from the linear model of the economy to a circular one. The index includes five sub-themes central to the circular economy, providing investors access to the shifting paradigm in growing segments such as biofuels, solar power, and waste management, along with collaboration and content sharing platforms. The top 10 companies from each sub-theme, by largest total market capitalization, will form the final index.

The Five Sub-Themes Are:

  • Sustainability of Resources: Provide renewable energy – bio-based or fully recyclable input material – to replace single-lifecycle inputs.
  • Resource Recovery: Recover useful resources and energy from disposed of products or byproducts.
  • Life Cycle Extension: Extend the working lifecycle of products and components by repairing, upgrading, and reselling.
  • Sharing Platforms: Enable the increased utilization rate of products through shared access, ownership, and use.
  • Product as a Service: Offer product access, and retain ownership, to internalize the benefits of circular resource productivity.

The top holdings in the Indxx US Circular Economy Index represent large, mid, and small cap firms across a mix of unique sub-industries representative of a world without waste. Many of the holdings focus on the Information Technology sector, with further exposure to the Communication Services, Consumer Discretionary, and Industrials sectors.

Ticker

Name

 Circular Economy Sub-theme

Total Market

Cap ($M)

Weight (%)

JMIA

Jumia Technologies AG

Life Cycle Extension

$3,593.21

8.39%

ENPH

Enphase Energy Inc

Sustainability of Resources

$22,167.58

6.94%

TSLA

Tesla Inc

Sustainability of Resources

$668,905.11

6.76%

ETSY

Etsy Inc

Life Cycle Extension

$22,432.84

4.55%

SNAP

Snap Inc

Sharing Platforms

$74,603.33

3.40%

MELI

MercadoLibre Inc

Life Cycle Extension

$83,386.78

3.15%

SHOP

Shopify Inc

Sharing Platforms

$138,093.33

3.03%

SPOT

Spotify Technology SA

Sharing Platforms

$59,655.18

2.78%

FSLR

First Solar Inc

Sustainability of Resources

$10,483.16

2.49%

OKTA

Okta Inc

Product as a Service

$32,918.05

2.48%

Source: Source: Bloomberg Finance, L.P., Indxx, as of 12.31.2020.

XLF – ETF of the Week: Financial Select Sector SPDR (XLF)

ETF Trends CEO Tom Lydon discussed the Financial Select Sector SPDR (XLF) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.

This ETF, one of the powerhouse SPDR products, provides exposure to an index that includes companies from the following industries: diversified financial services; insurance; commercial banks; capital markets; real estate investment trusts; thrift & mortgage finance; consumer finance; and real estate management & development. XLF contains the who’s-who of the domestic economy’s financial players, including JP Morgan, Wells Fargo, and others. This makes it an ideal play on the U.S. financials world, which has not always been stable.

So, it’s A big week for banks as the quarterly earnings season takes off. XLF includes an 11.9% position in JPM, 4.0% in C, and 4.0% in WFC. Banks were dealt a rough hand in 2020 but are starting to recover lost ground.

JPMorgan was the 7th worst-performing stock on the Dow in 2020 but was the 3rd best in 2019. A new accounting rule dubbed the “Current Expected Credit Losses” went into effect at the start of 2020, forcing banks to book expected loan losses upfront, weakening profits. Then the coronavirus hit, and the shutdowns spurred fears of a wave of bad loans.

Vaccine rollouts are now fueling bets of an economy returning normal by the second half of 2021. Additionally, the recent Georgia runoff election resulted in a Democratic party win. Wall Street believes the Democrat-controlled Congress to be a good outcome for bank stocks.

Contrary to the past, a Democratic party controlled government is usually not a good sign due to potentially tougher regulations and higher tax rates. Many are focusing on the greater likelihood of Congress passing through a big fiscal spending measure to further bolster a flagging economy that continues to be weighed down by the ongoing resurgence in coronavirus cases. Additionally, many do not believe President-elect Joe Biden will hike corporate taxes right as the country tries to shake off the coronavirus pandemic.

The bond markets are also seeing the yield curve steepen or rising long-term rates so that banks can enjoy a larger gap between short-term deposit rates and long-term loan rates.

What’s in Store for these Wall Street Banks?

JPMorgan, the largest U.S. bank by assets, performed better than peers during a tumultuous 2020. Analysts see more upside in the lender as economic conditions improve during 2021. It is expected to be one of the banks better positioned to benefit from improved credit conditions. Plus, BofA Securities and Jefferies both upgraded JPM as tailwinds offset relative weakness elsewhere.

Citigroup is a solid value play at this time and will most likely produce nice returns from stock growth and dividends over the coming years. Analysts have recently become bullish on the company’s earnings prospects.

Wells Fargo is breaking out of a period of consolidation. It isn’t expensive based on historical or relative multiples, still trading below its two-year forward price to tangible book value.

With that in mind, XLF tracks the performance of the Financial Select Sector Index. As alluded to above, the fund seeks to provide precise exposure to companies in the diversified financial services; insurance; banks; capital markets; mortgage real estate investment trusts (“REITs”); consumer finance; and thrifts and mortgage finance industries.

Listen to the full podcast episode on the XLF ETF:

For more podcast episodes featuring Tom Lydon, visit our podcasts category.

RAYC – Rayliant Launches World's First China Active Equity ETF, ‘RAYC'

On Thursday, Rayliant launched the world’s first active China equities ETF this morning on the New York Stock Exchange. The Rayliant China Quantamental Equity ETF (RAYC) targets U.S. investors seeking long-term capital appreciation in China. Unlike passive ETFs, which track an index, Rayliant’s active strategy is designed to capture long-term excess returns in the world’s second-largest economy.

“This is a tremendous opportunity to generate alpha against all of the axis products that are out there,” says Mark Schlarbaum, Managing Director, Head of Trading and Capital Markets.

He adds, “We’re the first product to really say China’s a huge market that we want to have access to. We’re offering a really smart quantitative driven, historically passive approach. It has a lot of local characteristics and mainland presence that really differentiates this from just someone who wants exposure to a broad beta of China.”

“We want to deliver a really excellent quantitative product that can weed out bad stock, and, over time, be that core product that an advisor would hold over a 3-5 year period of time, and will generate significant alpha over just the main exposure of A-share to the CSI 300 Index, for instance.”

Keeping China Active

“Rayliant’s China ETF signals the next generation of China ETF investing,” said Jason Hsu, Ph.D., Rayliant’s Founder and CIO. “Until now, U.S. investors have been limited to passive or thematic China ETFs. In a market where retail trading accounts for more than 80% of overall volume, China is one of the few major markets where active management can consistently deliver outsized returns. Our RAYC gives U.S. investors opportunities to outperform the mainland China equity market.”

RAYC employs a systematic approach that exploits mispricing in Chinese stocks. The strategy is localized to China, applying specialized data and models capturing features that make Chinese markets unique, including novel aspects of China’s accounting, regulations, market structure, state ownership, and investor behavior.

ETF Trends Director of Research, Dave Nadig, thinks the product fills a natural niche for investors.  “Many investors just look to broad EM funds for their China exposure,” Nadig commented.  “There have been products that try to expand this, through niche approaches or targeted indexes, but this is the first time we’ve seeing a true active approach to picking winners and losers in the local market.”

Hsu expanded on this. “We’re eliminating a lot of low-quality regional state enterprises. We’re also eliminating a lot of low-quality growth, and when people want to buy in China, they want to buy the upgrade in their consumer sector, and those tend to be high volume growth. They’re also many people who want to buy in China because of a lot of the attractive stocks that go up, yet tend to have low-quality growth. You want to differentiate those if you want to be a successful long-term investor.”

Clean Data

When it comes to having necessary information, Hsu states, “We use data that is commercial and publicly available. There’s also hard to get data – data that you wouldn’t know exists because it’s not collected in the U.S., but it can be found. It’s data that’s being constantly discovered, cleaned, and incorporated into our database to research, helping us to fill in any gaps, adding to our process for global accounting.”

Schlarbaum adds, “We spend two years just on cleaning and improving the data, before even starting to build the product.”

As active management in the ETF industry continues its remarkable growth, the NYSE is excited to support Rayliant in their launch of the first China equity actively managed ETF, said Douglas Yones, Head of Exchange Traded Products, NYSE. “With the RAYC ETF, Rayliant extends the benefits of active management to all investors, continuing to further democratize international investing for everyone.”

For more information about Rayliant, please visit https://rayliant.com.

For more market trends, visit ETF Trends.

OGIG – O'Shares' Internet ETF, OGIG, Pushes AUM Over Half A $Billion

The O’Shares Global Internet Giants ETF (OGIG) generated over a 109% return in the 1-year ending December 16, 2020, outperforming the NASDAQ 100 Stock Index by over 60%. This performance reflects the OGIG index and portfolio of 60 plus e-commerce and internet stocks, selected for quality and revenue growth.

Additionally, the strong performance and investor demand has pushed AUM over $600 million, with inflows from a diverse investor base. View the standardized performance for OGIG.

“It’s amazing how rapidly COVID transformed the consumer, businesses, and the economy. All have become much more digital. It’s much more than a simple story of work from home,” said Kevin O’Leary, Chairman of O’Shares ETFs.

“It’s work, shop, play, and more from anywhere you want, for consumers and businesses. OGIG demonstrates the difference between “Old Tech and New Tech.” Finding growth in this tech-driven economy is what OGIG is about. The OGIG portfolio has about 39% in stocks over a $100 billion market cap and 60% in stocks under $100 billion, including many faster-growing new tech companies. OGIG can be a New Tech investment to replace or to blend with Old Tech strategies.”

Related: Tom Lydon Opines About OGIG And Gold On Fox Business 

CEO of O’Shares ETFs, Connor O’Brien, discussed the OGIG index. “We developed the OGIG Index to be selective, holding high quality and fast-growing e-commerce and internet stocks. Stocks selected for revenue growth, profitability, and healthy balance sheets, and index rules that limit allocation to mega-cap stocks, allowing greater allocation to what we call mid-size giants, and these have been among the strongest OGIG stocks.”

“The OGIG portfolio is transparent. Investors who look under the hood will see many names they know and many new names that include fast-growing mid-size giants. The OGIG index is more than 70% different compared to the NASDAQ 100 index and the Technology Select Sector Index1 as of 11/30/2020, with actual revenue growth (trailing 12-month) of over 40% across the OGIG Index, compared to only 17% for the NASDAQ 100 index and 11% for the Technology Select Sector Index1 as of 11/30/2020.”

O’Brien continues, “We believe strong revenue growth across the OGIG index is very intentional because our research shows us that revenue growth is significant to business performance and stock price performance. We follow the analyst estimate data on Bloomberg and find it encouraging to see so many OGIG stocks have had positive revenue revisions.”

Examining OGIG

OGIG stocks include mega-caps that have performed well over the 1-year period as of November 30, 2020, such as the five largest holdings, Amazon (+75%), Alibaba (+31%), Alphabet (+34%), Tencent (+70%), and Facebook (+37%). It also includes notable mid-size giants such as Snap (+191%), Pinterest (+259%), Farfetch (+449%), Trade Desk (+242%) and Etsy (+270%). Zoom Video Communications (+603%), Shopify (+171%), and Mercadolibre (+172%) have been among the strongest performers in the portfolio year-to-date2.