ArrowShares, the Maryland-based issuer of exchange-traded funds with about $780 million in assets, recently launched the Arrow QVM Equity Factor ETF (QVM) to expand its offerings of the so-called “smart beta” ETFs.
The new fund is passively-managed and is likely to complement the firm’s two existing ETFs: the passively-managed Arrow Dow Jones Global Yield ETF (GYLD) and the actively-managed Arrow DWA Tactical ETF (DWAT).
QVM follows a so called Tri-Factor™ strategy – momentum, quality and value, to select stocks. Research showed the three common characteristics tend to drive equity prices together and are often superior to single-factor strategies.
The new fund tracks the Arrow Insights Quality Value Momentum Index (AIQVM), an index developed jointly with California based Ford Equity, to identify 50 stocks from large–, medium–, and small-cap securities that simultaneously demonstrate the three factors in equal measures. The index exhibits a favorable risk/reward profile relative to the benchmark S&P 500 Index over the past 20 years.
When screening for quality factor, the index considers variability in earnings, return on equity and dividend payouts along with the target company’s willingness to buy back its own shares. According to Arrow, the quality-metric adds a defensive characteristic to the portfolio by reducing overall earnings volatility and mitigating losses during market downtrends.
The value-screen takes into account a modified-version of earnings-to-price ratio; it considers one-time events and special circumstances.
Finally, for momentum, stocks that have displayed consistent price performance over a certain period of time are considered. The 50 stocks are selected from a broader universe of 3,500 stocks that meet the minimum liquidity and price standards. While holdings are selected twice a year, the index constituents are rebalanced every quarter to maintain the equal weighting strategy.
Top holdings include Cal Maine Foods (2.42 percent), Celanese Corp (2.35 percent), Microsoft Corp (2.30 percent) and Delphi Automotive Plc (2.29).
QVM has an annual expense ratio of 0.65 percent.
Disclosure: No holdings