Transamerica Asset Management has launched four new strategic beta ETFs designed to provide core equity strategies with an embedded risk management feature. Called the Deltashares By Transamerica suite, the new ETFs are the first to track the S&P Manged Risk 2.0 Index Series, which offers exposure to a given segment of the equity market while seeking to control volatility.
The new ETF range offers equity exposure with a managed risk strategy seeking to limit losses and capture the upside in rising markets.
Tom Wald, CEO of Transamerica Asset Management, commented: “With the DeltaShares ETFs, we aim to help investors participate in rising equity markets in order to meet retirement goals and fund liabilities, while potentially reducing downside risk during falling markets. Through a combination of stocks, US treasury bonds and cash, these DeltaShares ETFs will seek to optimize the most appropriate combination of these investment choices through a rules-based methodology based on stock market volatility trends.
“DeltaShares is setting out to enhance the link between risk and reward for institutions, retirees and investors who are seeking competitive investment returns but remain sensitive to equity market losses and volatility.”
The new ETFs each use a rules-based, managed risk strategy in order to help stabilize equity portfolio volatility and potentially reduce downside risk in significant and prolonged downturns. The suite of DeltaShares strategic beta ETFs, along with their respective total expense ratios (TERs) is as follows:
DeltaShares S&P 500 Managed Risk ETF (NYSE Arca: DMRL). TER – 0.35%
The fund tracks the S&P 500 Managed Risk 2.0 Index, providing exposure to US large-cap equities.
DeltaShares S&P 400 Managed Risk ETF (NYSE Arca: DMRM). TER – 0.45%
The fund tracks the S&P 400 Managed Risk 2.0 Index, providing exposure to US mid-cap equities.
DeltaShares S&P 600 Managed Risk ETF (NYSE Arca: DMRS). TER – 0.45%
The fund tracks the S&P 600 Managed Risk 2.0 Index, providing exposure to US small-cap equities.
DeltaShares S&P International Managed Risk ETF (NYSE Arca: DMRI). TER – 0.50%
The fund tracks the S&P EPAC Ex. Korea LargeMidCap Managed Risk 2.0 Index, providing exposure to broad international developed market equities.
The S&P Managed Risk Index series is designed to simulate a downside-protected portfolio which utilizes a framework that includes a targeted volatility and a synthetic option overlay to hedge the portfolio’s downside risk. Each index uses an equity component (e.g. the S&P 500), a fixed income reserve asset component (the S&P US Treasury Bond Current 5-Year Index) and a cash equivalent component (the S&P US Treasury Bill 0-3 Month Index).
The framework allocates the index weights between the equity and reserve asset and then the volatility of the combined allocation is hedged using a synthetic put option. At the heart of the risk management calculation is an optimization process that seeks to maximise equity exposure, subject to a volatility target and position constraints.
When equity volatility is relatively low, 100% of the weight is allocated to equity. When equity volatility is relatively high and volatility management is triggered, equity allocation will be reduced. If the correlation between the equity and reserve asset indices is positive, the cash equivalent asset is used to blend with equity to reduce volatility.
S&P Dow Jones Indices believes the framework provides for lower draw-downs and a stable volatility profile for the index while allowing for a higher participation in the upside of the components.
Vinit Srivastava, head of strategy and ESG Indices for S&P Dow Jones Indices, commented: “The S&P Managed Risk 2.0 Index Series, which simulates a downside-protected portfolio, represents a significant advancement in the field of managed risk indexing and builds on the industry-leading S&P Risk Control Indices. While other ways of hedging risk have existed in passive strategies, the managed risk indices are designed to reduce equities exposure into a reserve asset in times of market stress. Our team is excited DeltaShares selected these indices for its ETFs to track.”