ALPS, the Denver, Colorado-headquartered asset management firm with $7.6 billion in assets has teamed up with Goldman Sachs to launch a suite of exchange traded funds based on GS’ proprietary indexes. The four ETFs allocate assets based on market volatility and are engineered to follow active management styles.
Three of the new ETFs are based on GS’ “Momentum Builder” framework, a systematic trading strategy that seeks to capture momentum exposures to select asset classes and markets. This ensures more allocation to historical out performers and less to historical under performers.
However, unlike traditional momentum strategies that solely focuses on historical returns, the newly launched funds take into account historical correlation and volatility for managing risk of the overall portfolio.
The risk control mechanism reduces exposure to highly volatile assets and increases exposure to safer assets such as US Treasury Bills when market volatility spikes. To achieve this, the three month realized volatility of the current index is computed on a daily basis.
If volatility exceeds a predefined volatility cap, the index portfolio is partially reallocated into a cash position to achieve the targeted volatility. When volatility drops subsequently, the portfolio is reallocated back into the initial portfolio based on optimized levels proportionally to the decline in volatility.
The three new funds are the ALPS/GS Momentum Builder Multi-Asset Index ETF (GSMA), the ALPS/GS Momentum Builder Growth Markets Equities and US Treasuries Index ETF (GSGO) and the ALPS/GS Momentum Builder Asia ex-Japan Equities and US Treasuries Index ETF (GSAX).
The funds hold a wide range of third-party issued ETFs that provide the highest six-month historical returns, subject to the constraints on maximum and minimum weights and volatility controls. The index portfolios (that the funds track) are re-optimized on a monthly basis to achieve maximum momentum total return for the target level of volatility.
The Momentum Builder series ETFs have a 0.68 percent expense ratio.
The fourth product, the ALPS/GS Risk Adjusted Return US Large Cap Index ETF (GSRA), holds US stocks from the Russell 1000 Index that are anticipated to have the highest risk adjusted returns and uses a 12-month volatility-adjusted consensus price target. Sectors with lower anticipated risk are allocated higher weighting. GSRA has an annual expense ratio of 0.55 percent.
Again, my usual theme applies to this stable of new ETFs in that we need to see some historical price action before passing final judgment.
Disclosure: No holdings