ValueShares, the Broomall, Philadelphia-based exchange traded fund issuing-arm of money-management firm Alpha Architect LLC recently launched the international version of its earlier US-focused “quantitative value” ETF.
The newly launched ValueShares International Quantitative Value ETF (IVAL) is an actively-managed fund that seeks to invest in high-quality international value stocks trading at a discount.
Founded by former Drexel University finance professor Wesley Gray and his PhD colleagues, Alpha Architect manages nearly $200 million in assets. The fund’s investment methodology involves employing five different screens including forensic accounting, valuation and other quality metrics that are aimed at buying the highest-quality value stocks at cheapest possible prices.
IVAL tries to eliminate stocks that demonstrate rapid sales growth, high leverage and volatile financial statement ratios. Additionally, firms with dubious accounting practices or finances and that persistently report operating cash flows below their net income are removed as well. Gray and his team have developed an investing algorithm to scour for a group of target stocks.
Once sorted, the remaining picks are ranked by EBIT/TEV ratio (earnings before interest and taxes over total enterprise value or operating profit/TEV ratio) based on their proprietary model. IVAL chooses stocks that have lower TEV since back-tested data showed the strategy’s success depends on higher EBIT/TEV ratio.
The model supposedly gives superior results than more traditional metrics like price-to-earnings (P/E) and price-to-book value (P/BV) ratios by removing hidden biases that arise due to behavioral finance issues.
The new fund strives to maintain a portfolio that’s not fully correlated with the broader market. IVAL currently holds 51 stocks, mostly from developed markets. Equities from emerging markets can be added in future if they meet the fund’s selection criteria and liquidity requirements.
The fund is fairly well diversified with very little industry concentration and focuses primarily upon mid– to large–cap international stocks.
The fund has an expense ratio of 0.79 percent.
Disclosure: No holdings