Smart beta specialist Ossiam has expanded its suite of ETFs offering access to Nobel Prize-winning economist Professor Robert Shiller’s cyclically adjusted price-earnings (CAPE) methodology.
Professor Robert Shiller.
The original CAPE ratio, devised by Professor Shiller and his graduate student John Campbell in 1981, has become a widely used valuation metric providing a view on equities being over- or under-valued.
It is calculated by dividing the current market value of a security’s shares by its average, inflation-adjusted earnings over ten years to remove the effects of the business cycle. By comparing this figure to historical averages of other securities, the ratio provides insight into how companies are relatively valued.
Professor Shiller extended the CAPE measure to equity sectors and, in collaboration with Barclays, designed the Shiller Barclays CAPE Sector Indices. The indices use the Relative CAPE indicator, a normalized version of the CAPE ratio, supplemented with a momentum filter, as a valuation driver in a sector rotational strategy.
Ossiam offers a suite of ETFs linked to Shiller Barclays CAPE Sector Indices including two funds based on US and developed European equity markets, as well as ESG-tailored versions of these same strategies.
The firm has now supplemented that series with a new ETF based on a starting universe of developed market stocks globally.
The Ossiam Shiller Barclays CAPE Global Sector Value UCITS ETF (5OGU) has been listed on Euronext Paris, London Stock Exchange, Deutsche Börse Xetra, and SIX Swiss Exchange.
The fund comes with an expense ratio of 0.65%.
The ETF tracks the Shiller Barclays CAPE Global Sector Net TR Index which begins with a universe of ten sector-specific sub-indices of the MSCI World Index. The ten sectors are communication services, consumer discretionary, consumer staples, energy, financials, health care, industrials, information technology, materials, and utilities.
The methodology identifies the five most undervalued sectors, according to the Relative CAPE Indicator. It then removes one sector with the lowest 12-month momentum and equally weights the four remaining sectors.
Rebalancing occurs monthly with the index’s final allocation consisting of a mix of the sector basket identified in the current rebalancing and the baskets identified in several of the most recent previous rebalances.
According to Ossiam, the methodology aims to avoid overvalued sectors as well as eliminate potential value traps, creating a sector portfolio with value bias that helps to pick the right industries at the right point in time.
The strategy has proven popular with investors with Ossiam’s suite of Shiller CAPE ETFs housing over $3.2 billion in assets.