Guggenheim launches smart beta US large cap equity ETF

Apr 20th, 2016 | By | Category: Equities

Guggenheim Investments, a US-based provider of exchange-traded funds, has launched a new ETF offering an optimized smart beta allocation to the US large cap equity market. The Guggenheim Large Cap Optimized Diversification ETF (NYSE Arca: OPD), will track the Wilshire Large Cap Optimized Diversification Index, which follows an optimized selection of low correlated stocks.

Guggenheim targets diversification benefits with US equity ETF launch

William Belden, Guggenheim Managing Director and Head of ETF Business Development.

The index’s methodology selects stocks that tend to have lower correlation to the cap-weighted Wilshire Large Cap Index, a widely known reference for the US large cap equity market and weights them by correlation and risk to optimize diversification. Individual stocks are added only to the point they contribute to diversification, resulting in an index that generally includes 100 to 120 constituents.

Individual stock weights are capped at 1% and sector weights are maintained between the bounds of 0.5x – 2x their corresponding weights in the Wilshire Large Cap Index. The ETF’s underlying index is rebalanced quarterly. Wilshire believes this differentiated approach, when compared to other cap-weighted and strategic beta indices, may deliver attractive risk-adjusted returns.

“Ever since Nobel Prize winner Harry Markowitz’s pioneering work in modern portfolio theory, diversification has been recognized as a way to improve performance potential,” said William Belden, Guggenheim Managing Director and Head of ETF Business Development.

“Central to the concept of portfolio diversification is combining assets that are not highly correlated. As a result, a portfolio’s return will be equal to the weighted average return of the portfolio’s individual holdings while a portfolio’s risk, due to lower correlation among holdings, will be less than the weighted average risk of the individual holdings. Combining differentiated return streams from lowly correlated stocks may provide the potential for attractive risk-adjusted returns.”

As of 31 March 2016, the index contained 115 securities and had major sector exposure to the consumer staples (24.4%), consumer discretionary (19.4%), financials (14.0%), health care (12.5%) and information technology (7.3%) sectors. The fund has a total expense ratio of 0.40%.

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