SSgA Launches S&P 1500 Factor-Tilt ETFs
October 25, 2012
State Street Global Advisors, the market’s second-largest U.S. ETF provider and the sponsor behind the SPDR S&P 500 ETF (NYSEArca: SPY), is expected on Thursday to launch two S&P 1500 ETFs with factor tilts such as value and momentum, its contribution to the growing world of enhanced-beta ETF strategies.
The SPDR S&P 1500 Value Tilt ETF (NYSEArca: VLU) will track the S&P 1500 Low Valuation Tilt Index, which is an alternatively weighted version of the S&P 1500 Index that overweights stocks with relatively low valuations and those that are relatively expensive are underweighted.
The valuation of a stock is calculated based on the ratio of its price to its level of earnings, cash flow, sales, book value and dividends, according to the fund’s prospectus. S&P looks at five years of data to come up with that value factor.
The SPDR S&P 1500 Momentum Tilt ETF (NYSEArca: MMTM) will track the S&P 1500 Positive Momentum Tilt Index, and overweight those stocks with highest momentum in the S&P 1500 and underweight those with low momentum.
S&P looks at a stock’s price performance over the 11 months ending one month before the index is rebalanced, according to the filing. The securities are ranked based on that factor.
Both new ETFs come with an annual expense ratio of 0.35 percent, meaning that the management fee on a $10,000 investment would total $35 a year on either of the funds.
The funds go beyond the traditional market-capitalization-weighting methodology that’s behind most of the $1.3 trillion-plus in U.S.-listed ETF assets today.
Indeed, alternative strategies that look to capture what many call enhanced beta are growing in popularity with investors, and ETF providers are fine-tuning their offerings to go beyond the already bountiful supply of bread-and-butter strategies such as SPY and many other market-capitalization-weighted equities funds.
The S&P 1500 Index is an all-cap capitalization-weighted combination of the large-cap S&P 500 Index, the S&P Mid Cap 400 Index and the S&P Small Cap 600 Index.
The funds will track their benchmarks through a representative sampling strategy. VLU’s benchmark is rebalanced annually, while MMTM’s is rebalanced quarterly.
The original registration filing SSgA submitted to regulators detailing the funds also included an ETF that applies a volatility tilt to the S&P 1500, but that fund is not being launched this week.
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