Copia’s smart beta ETF portfolios deliver strong first-year performance

Jun 23rd, 2017 | By | Category: Equities

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Copia Capital Management, the discretionary fund manager of Novia group, has announced that its ETF-based smart beta portfolios have outperformed the median IA flexible sector return by an average 8.4% in their first year.

Hoshang Daroga, quantitative investment manager at Copia

Hoshang Daroga, quantitative investment manager at Copia.

Launched in March 2016, the two portfolios are the result of collaborations with US ETF provider First Trust and technical analysis strategists Dorsey, Wright & Associates (DWA). The Copia First Trust Smart Beta portfolio is made up of First Trust Advisor’s AlphaDEX ETFs, while the Copia Dorsey Wright Smart Beta portfolio also uses First Trust AlphaDEX ETFs, but will use other trackers when First Trust funds are not available.

The smart beta ETFs, used as building blocks within each portfolio strategy, use the AlphaDEX index methodology, which selects and weights stocks based on investment merit, as opposed to size. The aim of the index methodology is to identify stocks within a traditional broad-based index which exhibit the fundamental characteristics likely to provide the greatest potential for capital appreciation.

The Copia First Trust Smart Beta portfolio employs a quantitatively driven country rotation alongside a partial risk rotation strategy to determine the optimal asset allocation for the portfolio of First Trust smart beta ETFs. It achieved a return of 28.1% (with annualized volatility of 9.6%) in its first year.

The latter portfolio also uses an overlay of DWA technical analysis. It is fully invested in equity ETFs and evaluated for realignment at the end of each month with the top four funds by relative strength being equally weighted at all re-alignments. It achieved a return of 30.6% (with annualized volatility of 13.1%).

Over the same period, the IA sector average returned 21% with 7.3% volatility.

Hoshang Daroga, quantitative investment manager at Copia, said: “The strong performance of these new portfolios can be mainly attributed to outperformance from the underlying smart beta ETFs as well as the tactical asset allocation performed using the Copia Quant Model and the Dorsey Wright investment strategy. It is interesting to note that despite outperforming many of the ETF portfolios available in the market, inflows into smart beta led strategies still remain comparatively low”

Derek Fulton CEO at First Trust Global Portfolios, added: “There are a plethora of reasons why advisers and investors should consider using smart beta portfolios as part of their investment strategy, outstanding performance is understandably a key factor. Academic research continues to demonstrate the benefits of using smart beta in beating indices, but in order for advisers and investors to capitalise on these potential returns, education is needed to help advisers further understand this investment strategy which, whilst widely taken up in the US, remains to some extent hidden under a bushel here in the UK.”

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