State Street Launches Risk Aware ETF - ETF News And Commentary

Loading...
Loading...
Given the uncertainty related to the direction of the market, issuers are increasingly lining up with products that seek to generate profit for investors irrespective of market trends, up or down.


In keeping with this trend, State Street, which has already launched more than two dozen products this year, has come out with an ETF that seeks to generate profits during both bullish and bearish market cycles (read:
First Trust Launches Long-Short ETF for Uncertain Market
).


Below, we have highlighted some of the details of the newly launched product – SPDR SSgA Risk Aware ETF – which trades under the ticker RORO.


RORO in Focus

The actively managed fund seeks to outperform the Russell 3000 Index, which measures the performance of the largest 3,000 U.S. companies. The fund is based on the firm's proprietary quantitative market risk measurement model and aims to provide investors with a way to capitalize on risk-on and risk-off fluctuations in the U.S. equity market.


The model is based on different factors such as beta, size, style, credit risk, credit spread, implied volatility, gold price and U.S. dollar exchange rates.  During periods of anticipated high risk, the advisor tilts the portfolio towards large-cap defensive stocks with value features, while during periods of anticipated low risk, the portfolio composition is usually shifted towards small cap risky securities having growth characteristics.


This strategy results in the fund holding a basket of 180 stocks with Las Vegas Sands Corp, General Growth Properties Inc., and Lincoln National Corporation as the top three holdings with a total allocation of 11.4%. Sector-wise, the fund is heavily exposed to its top two sectors – Consumer Discretionary and Financials – with roughly 30% allocation each.


The fund currently charges 50 basis points as expenses (read:
Loading...
Loading...
3 Ultra Cheap Value ETFs for Long Term Outperformance
).


How Does It Fit in the Portfolio?

The fund is a good choice for investors looking to play a volatile market. The fund adjusts its portfolio composition as per the market trend to earn profits during both risk-on and risk-off market conditions.


Thus, the portfolio has the capability to earn profits during both rising as well as falling market conditions. Moreover, the fund provides exposure to the entire range of market capitalization including both low and high volatility stocks (read:
3 Low Risk ETFs for Market Turmoil
).


ETF Competition

Given that the fund seeks to lower portfolio volatility, it might face competition from other low volatility products targeting the space.
PowerShares S&P 500 Low Volatility Portfolio
(
SPLV
) is one of the most popular ETFs in the space with an asset base of $4.6 billion and trades with good volumes of more than 800,000 shares a day.


SPLV tracks the S&P 500 Low Volatility Index, which consists of 100 stocks from the S&P 500 Index with the lowest realized volatility over the past 12 months. The passively managed fund charges 25 basis points as fees.


iShares MSCI USA Min Volatility USMV
is another fund in the space with an AUM size of $2.8 billion and charging 15 basis points as fees. USMV seeks to replicate the MSCI USA Minimum Volatility Index, which comprises U.S. securities that have lower absolute volatility levels (read:
Three Global Low Volatility ETFs Debut from iShares
).


Bottom Line

Though the newly launched ETF might face competition from the above two products, it nonetheless can carve out a space for itself. This is especially true given that the fund can shift its portfolio allocation as per market conditions — if the markets are favorable, the fund might even choose to include high volatility stocks.


Moreover, with 50 basis points as fees, the fund is cheaper than other actively managed products available in the market. Thus, if the fund does manage to execute its strategy properly, it might generate decent after tax returns and in turn, be able to build a sizeable asset base.


Want the latest recommendations from Zacks Investment Research? Today, you can download
7 Best Stocks for the Next 30 Days
.
Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report

POWERSH-SP5 LVP SPLV: ETF Research Reports

To read this article on Zacks.com click here.

Zacks Investment Research

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Loading...
Loading...
Posted In: ETFs
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!

Loading...