Since entering the exchange-traded funds space over a year ago by acquiring VelocityShares, Janus have been steadily expanding fund offerings by launching both equity and fixed-income focused funds. Given Janus’ long history in fundamental factor based investment strategy, the newly-launched so-called Smart Growth equity funds seem long overdue.
The newly launched Janus Small Cap Growth Alpha ETF (JSML) and Janus Small/Mid Cap Growth Alpha ETF (JSMD) target the middle and small capitalization companies and provide exposure to smaller domestic US stocks in a unique way.
Linked to proprietary indices developed in-house, the new funds deploy the firm’s Smart Growth methodology to systematically identify mid- and small-cap companies with the potential for achieving long-term sustainable growth.
The proprietary investment strategy evaluates every eligible company from the wider equity universe on 10 fundamental factors in three critical areas: earnings growth, capital efficiency and profitability.
The top 10 percent stocks are subsequently selected while maintaining a well diversified exposure across all the sectors. Portfolio constituents are weighted according to their market capitalizations.
The small-cap focused JSML tracks the Janus Small Cap Growth Alpha Index, a proprietary smart-beta gauge that screens stocks from the broader Russell 2000 Growth Index based on such metrics as margin expansion and earnings per share for profitability trend; revenue growth rate over the past 2-, 5- and 8-year periods for growth momentum, and return on invested capital for capital efficiency.
That brings down the count of the Russell’s 2000 or so stocks to just about 200 different small-cap firms. Information technology is the fund’s top holding at 33.20 percent followed by health care (23.65 percent), consumer discretionary (14.37 percent) and industrials (12.86 percent). Financials (9.15 percent), consumer staples (3.06 percent), materials (1.97 percent) and energy (1.65 percent) all receive single-digit allocations.
JSMD on the other hand, screens firms for high and consistent profitability and earnings growth and tries to reflect the performance of Janus Small/Mid Cap Growth Alpha Index, which in turn tracks the much wider Russell 2500 Growth Index.
Investors tend to ignore small and mid-cap blends since some stocks in this space are too big for many small-cap indexes but not big enough for inclusion in mid-cap indexes, although many of them have produced pretty solid returns over longer horizons. JSMD taps into this small and mid-cap overlapping niche with an aim to produce outperformance, and remains the only ETF – smart-beta or otherwise, to do so.
Information technology (28.42 percent) gets maximum weight in JSMD, followed by healthcare (19.82 percent), industrials (17.57 percent), consumer discretionary (16.26 percent) and financials (10.56 percent). Materials (3.71 percent), consumer staples (1.76 percent) and energy (1.72 percent) receive single-digit allocations while cash & equivalents contribute a small 0.18 percent.
Both JSML and JSMD charge 0.50 percent annually.
Disclosure: No holdings