Elkhorn Capital Group, the research-based investment solutions provider, has launched a US equity income exchange-traded fund based on a strategy created by Research Affiliates, one of the pioneers of smart beta investing, and the methodology of index provider FTSE Russell.
Ben Fulton, Founder and CEO of Elkhorn.
“We are excited to be partnering with leading global innovators like Research Affiliates and FTSE Russell,” said Ben Fulton, Founder and CEO of Elkhorn. “Income remains an important area of need for investors and Research Affiliates brings a new and thoughtful approach to high yield equity investing. Their fundamental approach seeks to deliver better risk-adjusted returns over the long-term, and we are excited to deliver this new strategy to investors.”
The Elkhorn FTSE RAFI US Equity Income ETF (ELKU) provides exposure to a portfolio of high-dividend paying stocks which have been screened for financial health and weighted by their fundamentals. By weighting holdings by characteristics other than market capitalisation, a tenet of smart beta strategies, the ETF seeks to produce superior risk-adjusted returns by avoiding overvalued companies.
The fund aims to track the performance of the FTSE RAFI US Equity Income Index which has been developed and provided by Research Affiliates and FTSE Russell. The index offers a risk-managed approach to income investing by screening high-dividend paying stocks for financial health; this is determined through an analysis of each company’s profitability, lack of distress and accounting quality. Following this, Research Affiliates’ patented fundamental weighting methodology is applied which tilts portfolio exposure towards companies with attractive valuations using metrics such as the price-to-book ratio and dividend yield.
According to Research Affiliates, fundamental investing in high-dividend companies seeks to eliminate financially unsound companies and may mitigate sector concentration risk, resulting in reduced volatility and enhanced returns.
“Our Equity Income Index Series is an exciting new development in fundamental indexing, and we are pleased to partner with Elkhorn to deliver innovative solutions to investors. Although there are a number of dividend-based strategies on the market, we believe our extensive research in this area has produced a new, differentiated product that income-oriented investors should consider,” said Rob Arnott, Chairman and CEO of Research Affiliates.
“We have a longstanding relationship with the leadership team at Elkhorn and are thrilled that they are introducing this ETF based on our new FTSE RAFI US Equity Income Index,” said Ron Bundy, CEO North America Benchmarks for FTSE Russell. “In addition, we are excited to continue our collaboration with Research Affiliates to develop a fundamental dividend index solution for investors.”
The ETF has been listed on the BATS Exchange and carries a 0.39% expense ratio. “We are excited to welcome Elkhorn as a new issuer to The BATS ETF Marketplace,” said Laura Morrison, Senior Vice President and Global Head of Exchange-Traded Products at BATS. “We appreciate Elkhorn’s unique and strategic approach to designing ETFs and look forward to providing solid market quality for this new product.”