Guggenheim Investments, the eighth largest US issuer of exchange-traded funds with $27.5 billion in ETF assets-under-management, and the first to launch the so-called strategic/smart beta products, recently rolled out an ‘optimized’ strategic-beta product targeting the large capitalization US stocks.
The newly minted Guggenheim Large Cap Optimized Diversification ETF (OPD) seeks to replicate the performance of the Wilshire Large Cap Optimized Diversification Index, and pulls from the much broader Wilshire US Large Cap Index to target names that tend to show higher individual stock risk, and therefore lower correlation with the market or the parent index.
The portfolio constituents are weighted by correlation and dispersion in order to optimize the benefits of diversification, though the actual details are thin. The underlying index is constituted through a proprietary Wilshire algorithm and individual stocks are included to the extent they contribute to the fund’s overall diversification.
The number of constituents in OPD’s underlying index varies between 100 and 120, and the maximum fund allocation to any single name is capped at 1 percent – a low threshold designed to offset any bias toward mega-capitalization stocks.
However, constraints on exposure to different sectors are more relaxed than the broader Wilshire Large Cap Index; OPD can overweight a sector by doubling its exposure or underweight a sector to half at quarterly rebalances. Guggenheim believes this provides an opportunity to target potential upsides with the same market level of risk – market being defined as the parent Wilshire Large Cap Index. That should also translate into a better risk-adjusted return-profile than the parent index, according to Guggenheim.
While OPD is not an actively-managed ETF, constituent weights are different from the underlying Wilshire Large Cap Optimized Diversification Index. For example, the underlying index’s top three holdings are Newmont Mining (1.46 percent), Urban Outfitters (1.40 percent) and Exelon Corporation (1.26 percent), while OPD’s top three holdings are Medivation Inc (1.69 percent), Southwestern Energy (1.63 percent) and Newmont Mining (1.32 percent).
Investors seeking to build core positions within their equity holdings in their portfolios may find OPD attractive.
The fund charges 0.4 percent annually, or $40 for every $10,000 invested.
Disclosure: No holdings