ETF Securities, the London-based exchange-traded fund issuer known for its commodity-based products in the US, launched its first equity-based products in collaboration with US investment-research giant Zacks recently.
The two funds – the ETFS Zacks Earnings Large-Cap US Index Fund (ZLRG) and the ETFS Zacks Earnings Small-Cap US Index Fund (ZSML), focus solely on US large-capitalization and small-cap stocks only.
The new launches from ETFS come after a gap of nearly four years and are a clear departure from earlier products that took exposure only in physical and futures contracts of different commodities.
Both ZLRG and ZSML are passively managed funds and follow Zacks Investment Research’s quantitative models that ranks stocks based on earnings estimate and earnings quality. To mitigate risks, stocks are screened for liquidity and capacity while high diversification across sectors and stocks are continually maintained. Both the indexes use a two-tiered equal-weighting approach in the 16 sectors identified by Zacks.
ZLRG tracks the The Zacks Earnings Large-Cap US Index and selects about 140 components from the 1,000 largest stocks in Zacks’ universe. Only top five percent of stocks labeled “strong-buy” based on earnings estimate revisions and quality are eligible for inclusion.
Selected stocks are then equal-weighted in each of the 16 sectors while all the sectors are equal-weighted within the index as well. The underlying index logged an annual volatility of 14.7 percent with a Sharpe ratio of 2.1 at the end of December last. The top ten holdings include 3M, Honeywell, Raytheon and Weyerhaeuser.
Similarly, ZSML tracks the Zacks Earnings Small-Cap US Index and selects about 180 components that rank between 1,001 and 3,000 in Zacks’ investment universe. The index comprises of 15 industry sectors and sector-weights vary between 6.31 and 6.81 percent. Top holdings include Lear, Teco Energy, Spirit Aerosystems and B/E Aerospace.
Both ZLRG and ZSML charge 0.66 percent annually.
Disclosure: No holdings