Principal launches two US single factor ETFs

Oct 19th, 2017 | By | Category: ETF and Index News

Iowa-headquartered Principal Financial has rolled out two new single factor ETFs, expanding the firm’s smart beta line-up of funds. The new launches target large- and mid-cap US equities with strong value and momentum characteristics.

Principal launches two US single factor ETFs

Principal has launched three smart beta ETFs targeting US equities over the past two weeks.

The Principal Contrarian Value Index ETF (Nasdaq: PVAL) tracks the Nasdaq US Contrarian Value Index, which is designed to provide exposure to the balance sheet value risk premia of companies within the Nasdaq US Large Mid Cap Index. PVAL also attempts to avoid those companies that exhibit value traps – stocks that appear to be cheap due to trading at low price multiples but the company or even whole industry never improves.

The strategy starts by examining quarterly book yields over the past six years to establish current market conditions – normal or bearish. Under bearish conditions, the 30% of companies with the highest book yields are selected. When the market is considered normal, the rankings are adjusted based on leverage, volatility and forward-earnings dispersion. The top 30% are still selected. Constituents are weighted according to their rankings.

The Principal Sustainable Momentum Index ETF (Nasdaq: PMOM) tracks the Nasdaq US Sustainable Momentum Index, which selects equities from the Nasdaq US Large Mid Cap Index that exhibit strong price momentum.

Differentiating itself from the higher turnover trading strategies often associated with momentum plays, PMOM targets sustainable momentum based on a composite score of intermediate- and long-term risk-adjusted returns. To be eligible for inclusion, companies must rank in the highest 15% according to their composite scores, but once included the security only falls out of the index if it slips below the top 35% in future reconstitutions, thus reducing turnover. Constituents are weighted according to their momentum scores, along with a volatility adjustment.

Each ETF has a total expense ratio of 0.29%.

The funds arrive hot on the heels of the Principal US Mega-Cap Multi-Factor Index ETF (Nasdaq: USMC), which offers a smart beta play on the US mega-cap equity space and launched just last week (see: “Principal launches mega-cap low-vol ETF”). USMC selects the largest US companies in the Nasdaq US Large Cap Index and weights them according to a proprietary algorithm created by Principal and Nasdaq which seeks to lower the overall volatility of the index.

Tags: , , , , , , ,

Leave a Comment