Salt Financial, a start-up ETF issuer based in New York, is to launch the Salt truBeta High Exposure ETF (SLT US) on Cboe Global Markets. The fund will target companies expected to exhibit higher volatility relative to the broad US market using the firm’s so-called “truBeta” process.
Alfred Eskandar, co-founder of Salt Financial
A recent SEC filing from ETF Series Solutions on behalf of Salt Financial outlines the firm’s plans.
The proprietary truBeta process seeks to more accurately forecast a stock’s sensitivity to market movements, compared to traditional measures of beta. By doing so, the firm plans to deliver portfolio construction tools that provide magnified exposure, without the use of risky derivatives or expensive borrowing.
“Salt was created to help traders and investors capitalize on their best ideas and get rewarded for the risks they take without the complicated structures embedded in some other investment products,” said Tony Barchetto, founder of Salt Financial.
“Active retail and institutional investors and RIAs need powerful products that are simple to implement,” added Alfred Eskandar, co-founder of Salt Financial. “Today, investors generally have to choose between using complex products that reset daily or borrow on margin to enhance their exposure—we aim to provide a better alternative.“
The new fund will track the firm’s recently launched index, the Salt truBeta High Exposure Index, and will charge fees of 0.50% per annum.
The index uses truBeta estimates to select stocks with the highest sensitivity to the SPDR S&P 500 ETF (SPY US), increasing exposure to the underlying market with targeted stock selection instead of derivatives or leverage. It is designed to capture 50% more of the variation in SPY, targeting an average truBeta estimate of approximately 1.50.
The index selects 100 of the highest-ranked stocks by truBeta forecast from a universe composed of the Solactive US Large- and Mid-Cap Index, a benchmark of the 1,000 largest US stocks by market capitalisation. Constituents are equally weighted and rebalanced quarterly with a cap of 30% per sector.
Using back-tested data, over the past five years, the index has returned 15.6% per annum with annualised volatility of 18.8%. This is slightly better compared to SPY, which has returned 14.6% per annum over the same period, while SPY’s volatility is lower at 15.6% per annum.
Finance represents the highest weighting by sector at 29.5%, followed by technology at 26.0%.
The fund appears similar in concept to the $450m PowerShares S&P 500 High Beta Portfolio (SPHB US), which also invests in a portfolio of 100 high-beta stocks, but from within the smaller S&P 500 universe. SPHB charges 0.25% in fees.