Guggenheim adopts momentum filter within $500m multi-asset income ETF

Dec 9th, 2015 | By | Category: Alternatives / Multi-Asset

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Guggenheim Investments, a leading US issuer of exchange-traded funds, has adjusted the methodology behind their Guggenheim Multi-Asset Income Index ETF (NYSE Arca: CVY). The fund has added a momentum filter to its stock selection process, joining existing screening factors such as yield, liquidity, and relative value.

Guggenheim adopts momentum filter within $500m Multi-Asset Income ETF

Momentum investing seeks to capitalise on existing trends in the market by investing in an asset if its price has experienced a continual upward trend recently.

Momentum investing looks to capitalise on existing trends in the market. The strategy involves investing in an asset if the price of the index or security in question is trending upwards. A momentum investor believes that additional gains can be made in this situation.

Given that the performance benchmark which the fund attempts to beat is the Dow Jones US Select Dividend Index, the recent methodology revision is indicative of increasing consensus that utilising a smart beta momentum strategy can provide long-term returns which are superior to the broad market.

The Guggenheim Multi-Asset Income ETF tracks the Zacks Multi-Asset Income Index, a reference for companies with high income distributions and superior risk/return profiles. The index covers a range of asset types including common shares, preferred shares, real estate investment trusts (REITs), closed-end funds, master limited partnerships, and American depository receipts.

Due to the ongoing low interest rate environment, investors have increasingly been seeking out other investment types that offer high yields. With a trailing 12-month dividend yield of 6.8%, the Guggenheim Multi-Asset Income ETF has been an attractive proposition. Investors should take note that the securities within the fund are still susceptible to interest rate risk (as a rising financing cost in the case of REITs, for example) and may underperform when the Federal Reserve begins to normalise rates.

As of 8 December 2015, the fund contained 149 holdings and was invested primarily in the financials (36.8%), energy (18.9%), information technology (8.9%), materials (8.7%) and utilities (8.0%) sectors. The total expense ratio is 0.65%.

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