NY Firm, Sigma, Wants To Self-Index ETFs
June 26, 2012
Sigma Investment Advisors LLC, a company that appears to be related to New York-based indexing firm S-Network, is taking steps to launch self-indexed passively managed funds, the first of which would be an income-focused equities ETF.
In paperwork the company filed with U.S. regulators this week, Sigma requested similar “exemptive relief” from sections of the Investment Act of 1940 that allowed fund providers such as WisdomTree, Index IQ and Van Eck Global to bring to market self-indexed funds.
In the filing, the company opened the door to several strategies that would serve up exposure to everything from domestic equities to foreign fixed income, but detailed only one fund, an ETF that would track the S-Network North American High Income Equity Index.
The filing underscores a growing trend in the ETF space, namely the self-indexing of funds that can save fund firms from paying licensing fees. As an example, Van Eck recently established a Germany-based indexing unit that will provide indexes for Van Eck’s Market Vectors ETFs. Van Eck also hopes to license those benchmarks.
It’s less common to see an indexing firm venture into marketing ETFs, but the result is the same, and it all points to self-indexing as a trend that is gathering steam as the ETF industry grows. Licensing fees are structured as a percentage of assets, meaning fees can grow hefty as funds gather money.
The First Fund
Sigma’s initial fund would comprise securities that offer higher dividend yields than the broad U.S. stock market, including common and preferred stocks, closed-end funds, master limited partnerships, real estate investment trusts and convertible bonds.
The index underlying the initial ETF will be a modified capitalization-weighted benchmark that sets caps on various sectors, the filing said. As of June 1, it included some 153 pass-through securities with an average market capitalization of $3.42 billion and an aggregate capitalization of $524 billion, the prospectus said.
The index methodology for the ETF will also screen for market capitalization and liquidity to determine its holdings.