New York City-based Emles Advisors has added a further two ETFs to its product lineup that are in keeping with its mission to deliver access to differentiated and uncorrelated exposures or to markets where investors are less well served.
Gabriel Hammond, founder of Emles Advisors.
Listed on Cboe BZX Exchange, the funds present two distinct investment opportunities.
The Emles Luxury Goods ETF (LUXE US) provides thematic exposure to companies specializing in high-end goods – firms that are expected to benefit during the expansionary phase of the economic cycle. It comes with an expense ratio of 0.60%
The Emles Protective Allocation ETF (DEFN US), meanwhile, offers a defensive multi-asset strategy that aims to provide absolute returns in bullish and stressed market conditions. The fund is slightly cheaper at 0.55%.
Emles’s inaugural ETFs were introduced last month.
Luxury goods
LUXE is linked to the proprietary Emles Global Luxury 50 Index which selects its constituents from a global universe of stocks with market capitalizations above $100 million and an average daily trading volume greater than $25m.
The index currently includes 50 firms from either the consumer discretionary or consumer staples sectors, according to the Global Industry Classification Standard, that derive at least half of their revenue from the sale of luxury goods in the accessories, alcohol, apparel, athleisure, beauty, home, jewelry, and vehicles categories.
Constituents are weighted using a proprietary approach that favours firms deemed to have greater exposure to the luxury goods theme while capping any single stock at 3%. Rebalancing occurs on a quarterly basis.
While consumer stocks are typically cyclical in nature, many analysts argue that providers of luxury goods should be considered in a league of their own. These firms often possess so-called ‘economic moats’, such as strong customer loyalty and the potential for high margins, that may temper any decline when the market turns bearish.
A look at the index’s current constituents reveals well-known brands including Tesla, L’Oreal, Ralph Lauren, Adidas, Hugo Boss, Peloton, Porsche, Swatch, Burberry, Apple, BMW, Estee Lauder, Ferrari, and Nike.
Absolute return
DEFN tracks the Emles Protective Allocation Index to provide investors with competitive returns in benign market environments while protecting portfolios in periods of extreme market stress.
The index allocates approximately 55% of its exposure to US corporate credit securities, 35% to US-listed equities, including American Depository Receipts (ADRs), and the remaining 10% to a mix of put options, commodity futures, and Treasury Inflation-Protected Securities.
Eligible companies must have a minimum market capitalization of $50 billion and at least a BBB+ rating by S&P for long-term USD-denominated debt, although firms with no corporate debt or unrated debt may still be included. Corporate credit securities will only be included if a minimum of three years remain to final maturity.
Corporate credit and equity securities are selected using a proprietary scoring methodology that considers balance sheet health, earnings cadence, debt paydown ability, and other relevant factors.
Untapped opportunities
The new launches reinforce Emles’s mission to broaden investor access to non-traditional asset classes and strategies that are designed to generate attractive, uncorrelated returns.
The firm’s first four ETFs include the Emles Made in America ETF (AMER US), which capitalizes on the secular shift of deglobalization by investing in US manufacturing companies with a home bias; the Emles Federal Contractors ETF (FEDX US), which targets firms deriving the majority of their revenue from federal contracts with the US government; the Emles @Home ETF (LIV US), which provides thematic exposure to companies providing products and services for consumers at home; and the Emles Real Estate Credit ETF (REC US), which tracks bonds issued by property companies in a bid to enhance the income and diversification benefits of the real estate asset class.
Gabriel Hammond, founder of Emles Advisors, said, “We’re building an asset management firm to identify emerging opportunities and incubate asset classes in which others have not yet invested. There is an entire world of untapped investment opportunities that have been inaccessible either due to lack of imagination or the wrongful assumption that they are too complicated to execute.”