SSGA launches global value ETF

Sep 3rd, 2020 | By | Category: Equities

State Street Global Advisors (SSGA) has expanded its smart beta offering in Europe with a new ETF providing global exposure to quality value stocks.

Matteo Andreetto, Head of SPDR ETF Business, EMEA

Matteo Andreetto, Head of SPDR ETF Business, EMEA.

The SPDR MSCI World Value UCITS ETF has listed on Euronext Amsterdam in euros (WVAL NA) and is set to cross-list on London Stock Exchange in US dollars (WVAL LN) and pound sterling (VALW LN).

The ETF is linked to the MSCI World Value Exposure Select Index which selects its constituents from the parent MSCI World Index, a broad-market benchmark covering large- and mid-cap securities across 23 developed markets.

The methodology incorporates both quality and value metrics to help avoid so-called ‘value traps’ – stocks that appear attractively priced but may actually represent a poor investment due to substandard or deteriorating fundamentals.

Firstly, each security is assigned a value z-score (z-scores provide a sense of how far above or below the mean a data point is) based on an equally weighted combination of z-scores for price-to-earnings, enterprise value/operating cash flow, and price-to-book metrics. This value z-score is then standardized at the sector level.

In a similar fashion, each security is assigned a sector-relative quality z-score based on an equally weighted combination of z-scores for return on equity, debt to equity, and earnings variability metrics.

Each security is then assigned a value-quality z-score by combining their value and quality z-scores in the ratio of 2:1.

The index selects the 350 stocks with the highest value-quality z-scores. Constituents are weighted using a combination of their market capitalization and value-quality z-scores while capping any security at 5% and ensuring sector neutrality compared to the parent MSCI World Index.

Reconstitution and rebalancing occur on a semi-annual basis with buffer rules helping to limit unnecessary turnover.

Reflecting widespread concerns that the recent charge of the US stock market has stretched valuations, the index has a significantly reduced allocation to the US with 42.0% (compared to 67.1% in the MSCI World Index). This is mostly offset with an overweight allocation to Japanese stocks, which hold a 26.4% weight (vs. 7.4%). The next largest country exposures are the UK (8.2%), France (7.7%), and Germany (3.2%).

Information technology is the largest sector exposure at 22.0%, while healthcare (13.7%), financials (12.9%), consumer discretionary (11.6%), and industrials (10.1%) also play significant roles.

The ETF comes with an expense ratio of 0.25%.

SSGA offers a further two ETFs in its ‘Value Exposure Select’ suite, providing access to value-tilted stocks listed in the US and Europe: the SPDR MSCI USA Value UCITS ETF (USVL LN), which houses $100m, and the SPDR MSCI Europe Value UCITS ETF (EVAL LN), which has yet to generate significant AUM.

Matteo Andreetto, Head of SPDR ETF Business, EMEA, commented, “Investors using value strategies to take advantage of cheap stocks need to protect their portfolios against stocks that are ‘cheap for a reason’. Our suite of ETFs tracking the MSCI Value Exposure Select Indices enables investors to access strong value factor exposure while seeking to avoid value traps using a light quality touch.”

Ryan Reardon, ETF Strategist, SPDR ETF, added, “Against a Covid-19 backdrop, investors are looking for geographical diversification in select value strategies. Currently, value looks cheap based on valuation spreads, and value stocks often perform well in the recovery phase following a recession. Given uncertainty around the shape and timing of the recovery, value investing offers a relatively attractive complement to a well-diversified portfolio.”

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