Philadelphia-based Global Beta Advisors has built out its suite of US equity factor ETFs with the launch of two funds targeting returns attributable to low beta and sales momentum risk premia.
Vince Lowry, CEO of Global Beta Advisors.
The Global Beta Low Beta ETF (GBLO US) and Global Beta Momentum Growth ETF (GBGR US) have listed on NYSE Arca and come with expense ratios of 0.29%.
Each fund is linked to a proprietary index that seeks to outperform the S&P 500 by harvesting individual factor returns.
The Global Beta Low Beta ETF tracks the Global Beta Low Beta Factor Index which selects the quintile of S&P 500 stocks that have historically exhibited the lowest price movements relative to the broad market.
The fund will likely appeal to investors who benchmarked against the broad market but who want a strategy that will decline less in the event of a downturn.
Constituents are weighted by top-line revenue subject to a single security cap of 5%. A revenue-weighted approach may offer benefits over other alternative weighting schemes, such as by earnings, as revenue is less open to management manipulation.
The index is significantly tilted towards low beta sectors such as consumer staples (35.2% vs. 7.0% for the S&P 500) and healthcare (27.3% vs. 14.6%). Compared to the S&P 500, it is notably underweight information technology (1.2% vs. 27.5%).
Meanwhile, the Global Beta Momentum Growth ETF tracks the Global Beta Momentum Growth Factor Index which selects the highest quintile of S&P 500 stocks according to their percentage growth in top-line revenue over the past year). Constituents are weighted by free-float market capitalization subject to a single issuer cap of 10%.
The index’s largest sector exposures are information technology (34.3%), communication services (20.5%), consumer discretionary (16.0%) and healthcare (12.5%). This breakdown currently reflects the disruption across the economy caused by the Covid-19 pandemic and may change significantly in the future.
Global Beta Advisors made its ETF debut in December 2019 with the launch of the Global Beta Smart Income ETF (GBDV US). This fund tracks the proprietary Global Beta Smart Income Index which selects high yielding stocks from the large and mid-cap S&P 900 Index and then weights them by top-line revenue. It also comes with an expense ratio of 0.29%.
Vince Lowry, CEO of Global Beta Advisors, commented, “We’re excited to introduce two new strategies today that help investors gain targeted factor exposure at a more attractive valuation relative to their peer group. At this point in the equity cycle, we believe the easy money has been made and that valuations of traditional broad-based, capitalization-weighted index funds have become significantly stretched relative to their historic averages.
“Our research indicates that, across all relevant factors in the market, improving the price-to-sales ratio within a portfolio can significantly improve returns and can provide investors an additional level of downside risk mitigation. Given the current market environment today, we believe valuation is more important than ever.”