Principal Financial, the Iowa-based retirement and mutual funds specialist, recently expanded its exchange-traded fund offerings with the launch of two new so-called smart-beta funds. Principal is one of the biggest asset managers in the US, yet it was largely missing from the ETF landscape with just one actively-managed product to its name.
The Principal Shareholder Yield Index ETF (PY) targets US companies that return value to shareholders. The passively managed PY tries to reflect the performance of the Nasdaq US Shareholder Yield Index, which in turn, is a subset of mid– and large capitalization US companies within the broader Nasdaq US Large Mid Cap Index. Shareholder yield is a measure that quantifies the amount of cash returned to shareholders through buybacks, dividends and debt reduction.
The three components of the so-called ‘shareholder yield’ is a good metric of shareholder friendliness and the new fund is the only product that targets all the three factors. Most funds focus on one component, such as buybacks or dividends, but not both. PY’s investment strategy helps investors target companies that have the ability to support share prices through buybacks and have a history of dividend growth and debt reduction.
Additionally, the fund’s underlying index also considers free cash flow to ensure the constituent securities are positioned to continue to maintain those yields moving forward.
Financials (27.1 percent) receive maximum weight in PY, followed by consumer services (24.1 percent) and industrials (16.5 percent). All other sectors receive single-digit fund allocation.
The Principal Price Setters Index ETF (PSET) follows the Nasdaq US Price Setters Index, which constitutes of US companies with substantial pricing power; i.e. the ability to raise prices on goods and services without experiencing diminished demand.
The index follows the same selection universe as PY but chooses the top 150 companies based on an average score of 11 factors including such profitability metrics as EPS-growth, earnings quality and return-on-equity, along with more specific pricing-power measures such as standard-deviation of operating margin for the last seven years.
PSET is tilted toward industrials (25.5 percent), followed by financials (16.6 percent), consumer goods (16.4 percent), consumer services and healthcare (10.8 percent). Technology (6.8 percent), utilities (6.5 percent), basic materials (3.5 percent) and telecommunications (1.7 percent) all receive single-digit allocation.
Both funds charge 40 basis points annually.
Disclosure: No holdings