Elkhorn Investments launches low vol/high beta rotation ETF

Oct 21st, 2016 | By | Category: Equities

Elkhorn Investments has launched the Elkhorn Lunt Low Vol/High Beta Tactical ETF (Bats: LVHB), which switches between low volatility and high beta equities depending on momentum signals in the US equity market.

Elkhorn Investments launches next generation low-vol rotation ETF

Ben Fulton, CEO of Elkhorn Investments.

“Low-volatility strategies have become popular in the past several years, but recent underperformance has shown investors that low-volatility isn’t always the best place to be,” said Ben Fulton, CEO of Elkhorn Investments. “Factors, including low-volatility, have their own season and Lunt Capital’s strategy allows investors to tactically rotate between low-volatility and high-beta stocks within the tax-efficient ETF structure.”

The ETF tracks the Lunt Capital US Large Cap Equity Rotation Index, based on Lunt Capital’s proprietary risk-adjusted momentum strategy, and calculated by Standard & Poors. The index is binary in nature, switching between being fully exposed to the S&P 500 Low Volatility Index and the S&P 500 High Beta Index in an effort to generate alpha. The index evaluates the two sub-indices on a monthly basis, choosing the index with the stronger risk-adjusted relative strength.

“Factor rotation may generate alpha over a static, low-volatility allocation,” notes John Lunt, President of Lunt Capital. “Using a rules-based strategy to capture the wide dispersion between low-volatility and high-beta stocks offers investors a passive means to generate alpha in their portfolios.”

The S&P 500 Low Volatility Index measures the performance of the 100 least volatile stocks in the S&P 500. Constituents are weighted relative to the inverse of their volatility, with the least volatile stocks receiving the highest weights.

The S&P 500 High Beta Index measures the performance of the 100 constituents in the S&P 500 that are most sensitive to changes in market returns. Each constituent’s weighting is set in proportion to its historical beta.

As of 21 October 2016 the fund was invested so as to track the S&P 500 High Beta Index. The largest sector allocations are to financials (34.4%), energy (28.7%), and information technology (13.6%).

Using back-tested data, the Lunt Capital US Large Cap Equity Rotation Index has returned 10.9% since the start of the year to 1 October 2016, compared to a 7.8% return for the S&P 500. Since its inception date of 29 December 2014, the index has an annualized return of 7.9% with an annualized volatility of 13.9%, compared to the S&P 500 which has an annualized return of 4.3% and an annualized volatility of 15.0%.

Source: Bloomberg.

Source: Bloomberg.

The ETF has a total expense ratio of 0.49%.

Tags: , , , , , , , ,

Leave a Comment