O’Shares adds to smart beta range with Asia Pacific and European ETFs

Aug 24th, 2015 | By | Category: Equities

O’Shares Investments, a Boston-based investment manager and exchange-traded fund issuer, has added to their roster of multi-factor smart beta ETFs with the launch of the O’Shares FTSE Asia Pacific Quality Dividend ETF and O’Shares FTSE Europe Quality Dividend ETF.

O'Shares adds to smart beta range with Asia Pacific and European ETFs

Kevin O’Leary, O’Shares Chairman.

The new ETFs aim to deliver a quality income strategy through a combination of factor exposures (quality, low volatility and dividend yield) which seek to allocate to companies which will, in aggregate, deliver enhanced total returns at a lower level of risk.

Similar to the O’Shares FTSE US Quality Dividend ETF (OUSA) launched in July, the funds are designed to be a core regional equity holding for investors.

“We believe now is an excellent time to provide individual and institutional investors with a set of efficient, transparent and cost effective index-based investment products that reflect our core investment principles. So we joined forces with leading global index provider FTSE Russell to launch our family of global index-based ETFs,” said O’Shares Chairman Kevin O’Leary.

Launched in partnership with index provider FTSE Russell, the funds track the FTSE Asia Pacific Qual / Vol / Yield Factor 5% Capped and FTSE Europe Qual / Vol / Yield Factor 5% Capped indices, respectively.

The indices attempt to avoid companies that may cut dividends by assessing risk on two dimensions: fundamentals and returns. A quality screen is first applied which systematically analyses company profitability and leverage to identify those with the ability to generate strong future cash flows. This is complemented by tilting the portfolio towards low volatility stocks, measured by the standard deviation of their price movements. The output of this process is then weighted based on twelve month trailing dividend yield.

Individual index constituent weights are capped at 5% on a quarterly basis to avoid over-concentration in any single security.

The combination of quality, low volatility and dividend yield factors provides important diversification benefits. While single factor portfolios have historically provided long-term outperformance, they can go through periods of relative underperformance.  As the correlation between each factor has historically been low, combining multiple factors should smooth the time-varying nature of performance.

 The ETFs have been listed on the NYSE Arca exchange. The European fund carries a gross expense ratio (GER) of  0.61% while the Asia Pacific fund’s GER is slightly higher at 0.66%. O’Shares plans to release currency-hedged versions of both funds for investors wishing to mitigate the currency risk associated with international investing.

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