Compass EMP introduces downside hedged US small-cap ETF

Aug 6th, 2014 | By | Category: Equities

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Compass Efficient Model Portfolios has launched its fourth “smart beta” exchange-traded fund on the Nasdaq stock market. The listing follows last month’s ETF debut by the Tennessee-based Compass EMP.

Compass EMP introduces downside hedged US small-cap ETF

Compass EMP’s latest ETF is designed to offer exposure to US small-cap stocks with reduced downside risk.

The investment adviser’s latest ETF, the Compass EMP US Discovery 500 Enhanced Volatility Weighted Index ETF (CSF), is designed to offer investors US small-cap exposure while ameliorating downside risks.

The fund is linked to the CEMP US Small Cap 500 Long/Cash Volatility Weighted Index, which in turn is based on the CEMP US Small Cap 500 Volatility Weighted Index, a volatility-weighted index of US stocks with market capitalisations of less than $3 billion.

Unlike the parent index, however, the CEMP US Small Cap 500 Long/Cash Volatility Weighted Index includes an innovative mechanism which enables it to reduce equity exposure by 75% through increased cash holdings in the event of a market decline.

The strategy’s trigger for moving out of equities is a 10% decline in the parent index. The trigger for reinvesting in equities is either a return to the previous daily high or, to capitalise on discounted prices, further deeper falls of 20%, 30% and 40% via incremental increases.

Stephen Hammers, Chief Investment Officer of Compass EMP Funds, said: “It’s exciting to introduce our latest, innovative smart beta product that seeks to outperform both traditional indexes as well as active ETFs over the long-term.”

He added: “Our newest ETF is focused on US small-cap equities and may offer performance enhancements through fundamental criteria combined with its unique securities volatility weighting. Further, this ETF has the ability to liquidate 75% of the securities in the index to cash in the event of a market decline.”

Dave LaValle, Head of Exchange Traded Product Listings at Nasdaq OMX, commented: “We’re pleased to welcome Compass EMP’s fourth innovative exchange-traded product to the Nasdaq marketplace. We value our partnership with Compass EMP and appreciate their confidence in choosing Nasdaq as their listing partner to bring their first suite of ETPs to market.”

The fund has net expenses of 0.68%.

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