Geopolitics has taken precedence over economics in the past few months, thus stoking uncertainty and volatility across asset classes. European Central Bank President Mario Draghi’s latest statement this week that investors should prepare for higher market volatility underscores this new reality and calls for better protection for possible downsides.
Actively managed exchange-traded funds tend to perform well during uncertain times as fund managers regularly make necessary changes in a rapidly changing environment based on investors’ risk-reward profile.
Amid all the noise involving the US economy, New York-based Innovator Management recently launched the Innovator IBD 50 Fund (FFTY) ETF to give investors’ access in IBD’s proprietary investment strategy. Financial publication Investor’s Business Daily (IBD) has been compiling and preparing for decades a list of 50 stocks under the so-called IBD 50 heading and rating them based on relative strength.
FFTY follows IBD’s CAN SLIM formula and aspires to become the one-stop shop for investing in the top 50 growth names. The CAN SLIM formula – pioneered by IBD founder William O’Neil in the 1960s, combines such stock characteristics as current and annual earnings growth, new & innovative products or services, leadership in a particular industry or sector and growing institutional/mutual fund ownership, among various other factors.
He figured out seven basic factors occurred over and over again in top-performing companies and combined the seven fundamental and technical indicators and formulated the CAN SLIM approach.
The investment process eliminates behavioral pitfalls and removes biases toward any particular sector or industry. The constituents are monitored regularly to retain true leaders and replace names if fundamentals or technical indicators deteriorate.
FFTY’s ability to dispassionately refresh itself every week is the key for its outperformance, claims Innovator Management. Data shows IBD 50 returned nearly 18 percent per annum over the past 12 years, almost twice as much of the benchmark S&P 500 in the same period.
The 50-stock portfolio is reasonably well diversified with none of the securities exceeding 3.85 percent of total weight. The CAN SLIM strategy typically targets small, fast growing companies, which puts FFTY in small-cap growth equities category. Top ten holdings include Ambarella Inc (3.85 percent), Vasco Data (3.64 percent), Ulta Salon Cosmetics and Fragrance (3.54 percent) and Paycom Software (3.51 percent).
The new fund is expected to face stiff competition from the iShares Russell 2000 Growth ETF (Assets Under Management $7.3 billion, fees 25 basis points) and the Vanguard Small Cap Growth ETF (AUM 4.6 billion, fees 9 bps), both passively managed funds.
The actively-managed FFTY charges 80 basis-points annually.
Disclosure: No holdings