Elkhorn Investments launches US midcap sector ETFs on Bats

Jan 4th, 2017 | By | Category: Equities

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Elkhorn Investments has launched the industry’s first US midcap sector exchange-traded funds, tradable on Bats ETF Marketplace.

Graham Day Elkhorn Investments

Graham Day, Senior Vice President, Head of Product and Research, at Elkhorn Investment.

Each ETF provides beta exposure to US midcaps by tracking indices composed of securities from the parent S&P MidCap 400 Index which have been classified according to their respective Global Industry Classification Standard (GICS) sector. Each index is weighted by market capitalization with a single company cap of 22.5% and a cap of 45% on the sum of weights of all companies with an individual weight greater than 4.5%.

The parent S&P MidCap 400 Index serves as a barometer for the performance of US midcap equities and is the most widely followed midcap index in existence. To be included in the index, a stock must have a total market capitalization that ranges from $1.4bn to $5.9bn at the time of addition to the index.

The sector indices follow a quarterly rebalancing schedule with adjustments made in March, June, September and December.

Elkhorn notes that midcaps have outperformed large- and small-cap stocks on an absolute and risk-adjusted basis since 1979. They are often referred to as the ‘sweet spot’ of investing based on a perceived combination of the financial strength of comparable large cap firms and the growth potential of small caps. Stronger balance sheets, more established markets and better access to financing reduce the risk of midcaps compared to smaller cap stocks while operating in less mature industries compared to large caps opens up the potential for higher relative growth.

Graham Day, Senior Vice President, Head of Product and Research, at Elkhorn Investments, commented: “We are excited to bring to market what may be the last frontier of beta exposure to an important area of US equities – midcap sectors. Midcaps are commonly referred to as a ‘sweet spot’ for equity investing given their long-term outperformance of both large and small caps and we believe the Elkhorn S&P MidCap Sector ETFs will provide ETF investors better tools to access this space.”

The nine Elkhorn MidCap Sector ETFs and their respective underlying S&P indices are listed below:

Elkhorn S&P MidCap Consumer Discretionary Portfolio (XD)
S&P MidCap 400 Capped Consumer Discretionary Index

Elkhorn S&P MidCap Energy Portfolio (XE)
S&P MidCap 400 Capped Energy Index

Elkhorn S&P MidCap Financials Portfolio (XF)
S&P MidCap 400 Capped Financials Index

Elkhorn S&P MidCap Health Care Portfolio (XH)
S&P MidCap 400 Capped Health Care Index

Elkhorn S&P MidCap Industrials Portfolio (XI)
S&P MidCap 400 Capped Industrials Index

Elkhorn S&P MidCap Information Technology Portfolio (XK)
S&P MidCap 400 Capped Information Technology Index

Elkhorn S&P MidCap Materials Portfolio (XM)
S&P MidCap 400 Capped Materials Index

Elkhorn S&P MidCap Consumer Staples Portfolio (XS)
S&P MidCap 400 Capped Consumer Staples Index

Elkhorn S&P MidCap Utilities Portfolio (XU)
S&P MidCap 400 Capped Utilities Index

Each ETF is offered with a total expense ratio (TER) of 0.29%.

Investors should note that the midcap information technology sector ETF also includes telecommunications exposure, and the financial sector ETF includes some exposure to real estate investment trusts (REITs). REITs were previously split away from the financial sector in August 2016, becoming the newest sector under GICS.

For investors looking for broad exposure to US midcap equities, one may wish to consider the iShares Core S&P Mid-Cap ETF (NYSE Arca: IJH) which has approximately $35bn in assets under management (AUM) and a TER of just 0.07%.

European-listed ETFs providing access to broad US midcap equities include offerings from Deutsche Asset Management, SPDR ETFs and Commerzbank.

The db X-trackers Russell Midcap UCITS ETF (LON: XRMU) tracks the Russell Midcap Index, has $127m in AUM and a TER of 0.35%. The SPDR S&P 400 US Mid Cap UCITS ETF (LON: SPY4) tracks the S&P 400 Midcap Index, has $700m in AUM and a TER of 0.30%. The ComStage MSCI USA Mid Cap TRN UCITS ETF tracks the MSCI USA Mid Cap TRN Index and has a TER of 0.35%.

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