Prudential launches its first equity ETF

Nov 20th, 2018 | By | Category: Equities

Prudential Global Investment Management (PGIM) has launched the PGIM QMA Strategic Alpha Large-Cap Core ETF (PQLC US) on NYSE Arca, providing actively managed exposure to US large-cap stocks with value, quality, and low volatility characteristics.

QMA Chairman and CEO Andrew Dyson

QMA Chairman and CEO Andrew Dyson.

Sub-advised by QMA, the quantitative equity and global multi-asset solutions manager of PGIM, the fund seeks long-term growth of capital by selecting its holdings based on proprietary bottom-up stock analysis. This analysis is conducted on an ongoing basis.

Stocks making it into the portfolio are held at approximately equal weights, and rebalancing is opportunistic based on market conditions.

“With more than 40 years of systematic active management expertise, we’ve created an investment product that delivers our best institutional research on multifactor investing to the ETF market,” said QMA Chairman and CEO Andrew Dyson. “Our research shows that investors frequently overpay for stocks that have a low probability of outsized returns or may provide lower risk. We’ve found a way to help protect investors from such behavioural biases.”

The ETF will be benchmarked against the S&P 500 as well as the average return on US large-cap core strategies according to Thomson Reuters Lipper’s database of funds.

It comes with an expense ratio of 0.17% which PGIM notes is approximately half the cost of the average passively managed ETF in the large-blend category, an uncommon yet favourable feature for an actively managed ETF.

Indeed, the fund is conveniently priced one basis point cheaper than the leading ETF in this space – the $15.0 billion iShares S&P 500 Value ETF (IVE US).

State Street Global Advisors offers the cheapest ETF in this segment however; the SPDR Portfolio S&P 500 Value ETF (SPYV US) tracks the same index as the iShares fund but costs just 0.04%.

The new ETF is PGIM’s debut equity ETF following the launch of two actively managed fixed income funds earlier this year.

“Adding equity to our mix of ETF strategies gives investors a cost-effective way to access the equity markets while obtaining the potential benefits of active management,” said Stuart Parker, President and CEO of PGIM Investments. “Introducing these funds—managed by one of the industry’s pioneering quantitative managers—is a natural evolution in our effort to create new investment vehicles that meet investors’ evolving needs.”

PGIM plans to quickly expand its active ETF capabilities with another three ETFs lined up for launch before the end of the year.

Also sub-advised by QMA, two of the ETFs will provide exposure to US small-cap equities, targeting returns attributable to the growth and value factors, respectively, while the third ETF will invest in a blended portfolio of stocks listed outside North America.

The ETFs are to be named the PGIM QMA Strategic Alpha Small-Cap Growth ETF (PQSG US), the PGIM QMA Strategic Alpha Small-Cap Value ETF (PQSV US), and the PGIM QMA Strategic Alpha International Equity ETF (PQIN US). Each is expected to come with an expense ratio of 0.29% which is significantly lower than the average cost of existing active ETFs operating in these areas.

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