SmartBe Wealth, a Calgary, Alberta-based wealth manager focused on quantitative investing, has launched four factor equity ETFs on Canada’s NEO Exchange.
Rod Heard, co-Founder and CEO of SmartBe Wealth.
The funds, which are linked to indices from Alpha Architect, a Philadelphia-based asset manager and smart beta ETF issuer, target momentum or value factor risk premia within Canadian or US stock markets.
Rod Heard, co-Founder and CEO of SmartBe Wealth, commented: “These funds are unique in Canada and represent a new opportunity for Canadians to add concentrated factor exposure to their portfolios. Our exclusive partnership with Alpha Architect continues to flourish, and we are confident in their sage approach to scientific investing.”
Wes Gray, CEO of Alpha Architect, added: “We buy into SmartBe’s vision of creating the leading quantitative investment boutique in Canada and partnered with SmartBe because of our shared values in transparency and education.”
Canadian equity factors
The SmartBe Canadian Quantitative Momentum Index ETF (SBCM CN) tracks the Alpha Architect Canadian Quantitative Momentum Index, while the SmartBe Canadian Quantitative Value Index ETF (SBCV CN) tracks the Alpha Architect Canadian Quantitative Value Index.
Each index begins with a universe of the 200 largest common stocks of companies listed in Canada. Firms considered at risk of financial distress or financial statement manipulation are removed.
The value index identifies the 40 cheapest companies based on a proprietary, value-centric metric similar to the enterprise multiple, which is a firm’s total enterprise value divided by earnings before interest and taxes. From this reduced pool, the index employs a final quality screen to select the 20 firms with the strongest financial positions and operational momentum.
The momentum index, meanwhile, identifies the 40 companies with the highest cumulative return over the past 12 months. From this reduced pool, a momentum quality screen is used to select the 20 firms with the most consistent positive returns, as opposed to short-lived success, during the 12-month period. This screen measures the number of days during the 12-month period for which a company’s returns were positive or negative.
Constituents within each index are equally weighted, and the indices are rebalanced on a quarterly basis.
US equity factors
The SmartBe US Quantitative Momentum Index ETF (SBQM CN) tracks the Alpha Architect US Quantitative Momentum Index, while the SmartBe US Quantitative Value Index ETF (SBQV CN) is linked to the Alpha Architect US Quantitative Value Index.
The indices follow a similar approach as described above, although the starting universe for these indices consists of the 1,500 largest stocks listed on US exchanges. The initial value and momentum screens each identify 100 stocks with the highest value and momentum factor scores. From these reduced pools, the quality and quality momentum screens each select 50 securities to form the final portfolios for their respective index.
All four ETFs come with management fees of 0.69%. Distributions are made to investors on a quarterly basis.
SmartBe made its ETF debut in February 2019 with the launch of the SmartBe Global Value Momentum Trend Index ETF (SBEA CN) on the NEO Exchange. This fund, which tracks the Alpha Architect Value Momentum Trend for Canada Index, allocates its exposure across six Alpha Architect sub-indices targeting either the value or momentum factors within the US, Canadian, or global developed ex-North America equity markets. The fund has struggled to gather assets, however, which currently stand at C$35 million, and is scheduled to close by April 2021.