State Street, a major player with over 100 different funds in its portfolio, has nearly quarter of a trillion dollars in assets under management. The latest funds, while tracking the S&P 1500 index, will ‘tilt’ on different aspects such as value and momentum of the component securities makeup – an enhanced-beta strategy that is fast gaining popularity in the world of investment science.
The two new funds, the SPDR S&P 1500 Momentum Tilt ETF (MMTM) and the SPDR S&P 1500 Value Tilt ETF (VLU), target stocks with high momentum and stocks that display value characteristics. With this ‘tilt’ strategy, the funds seek broad market exposure but with a more alpha-seeking approach.
MMTM will track the S&P 1500 Positive momentum Tilt Index and will buy those stocks in the S&P 1500 benchmark that have appreciated in price the most over the past 12 months.
S&P analyses a stock’s price performance over the past 11 months ending one month before the benchmark is rebalanced and goes beyond the traditional capitalization-weighted combination of large-, mid-, and small cap indexes. Currently, the portfolio is tilted towards staples and tech with Apple receiving nearly 8.4 weight and leans away from energy and financials. The fund follows the underlying index through a representative sampling strategy.
VLU on the other hand, tracks the SPDR S&P 1500 Low Valuation Tilt Index and looks to provide exposure to low valuation stocks in the US market by analyzing a few key attributes such revenue, earnings, cash flows, book value, dividends paid etc.
The strategy, however, results in an index that has higher dividend-yield and lower financial ratios such as P/B, PE and P/CF. As a result, please note both EPS growth rate and RoE for the index are lower than the broad S&P Composite 1500 benchmark. The funds have an annual expense ratio of 35 basis points each.
Another new twist in the ETF arena. As with all new products, we’ll have to wait and see until a price and volume pattern has been established before considering these as viable investment alternatives.
Disclosure: No holdings