Global asset manager Columbia Threadneedle Investments has launched three smart beta exchange-traded funds targeting global, international or US-listed dividend paying firms. The suite of rules-based, factor-driven, smart beta ETFs – called the Columbia Beta Advantage family – are launched on NYSE Arca.
Columbia Threadneedle’s newly launched ETFs provide alternatively-weighted exposure to income producing equities that have been screened for the sustainability of their dividend policies.
Colin Moore, Global Chief Investment Officer at Columbia Threadneedle Investments, commented: “We’re excited about the launch of our first Beta Advantage funds. We believe that these types of strategies have the potential to help advisors and their clients meet important investment goals, such as generating income, growing assets and managing volatility.”
The Columbia Sustainable US Equity Income ETF (NYSE Arca: ESGS) tracks the Beta Advantage Sustainable US Equity Income 100 Index. The index consists of 100 stocks that provide investors with exposure to US large- and mid-cap companies. As of 31 May 2016 the largest sector exposures are to industrials (16.7%), information technology (14.5%), financials (14.5%), energy (12.8%) and consumer staples (10.4%). The total expense ratio of the fund is 0.35%.
The Columbia Sustainable International Equity Income ETF (NYSE Arca: ESGN) tracks the Beta Advantage Sustainable International Equity Income 100 Index. The index consists of 100 stocks that provide investors with exposure to foreign (developed market) large- and mid-cap companies. As of 31 May 2016 the largest country weights are in Japan (31.6%), the UK (11.8%), France (9.3%), Canada (9.2%) and Australia (5.2%). The largest sector exposures are in industrials (21.7%), consumer discretionary (16.3%), financials (14.0%), materials (10.7%) and energy (10.1%). The TER of the fund is 0.45%.
The Columbia Sustainable Global Equity Income ETF (NYSE Arca: ESGW) tracks the Beta Advantage Sustainable Global Equity Income 200 Index. The index consists of 200 stocks that provide investors with exposure to US and foreign (developed market) large- and mid-cap companies. As of 31 May 2016 the largest country exposures are in the US (59.5%), Japan (12.8%), and the UK (4.8%). The largest sector weightings are to industrials (18.7%), financials (14.3%), consumer discretionary (11.8%), energy (11.7%) and information technology (10.3%). The TER of the fund is 0.40%.
Each ETF’s custom-designed index is calculated by MSCI. To construct the indices, all securities from their parent index are screened according to their MSCI environmental, social and governance (ESG) scores, as well as their dividend yields. Securities with ESG ratings of BB or below, as well as those with dividend yields less than 1% are excluded. All remaining constituents are then ranked according to a composite score based upon the firm’s dividend yield, dividend growth and cash flow metrics. Favourable results in these factors have historically been associated with stable dividend policies due to companies being more likely to possess the financial stability to support and grow future dividend payments.
The weighting of the securities within the US and international indices are distributed linearly from 1.495% for the highest ranked security to 0.505% for the 100th ranked security at the time of rebalancing. Those in the global index are assigned weightings according to the securities weight in either the US or international index, adjusted for the relative capitalisations of MSCI USA Index and the MSCI World ex-USA Index at the time of rebalancing.
These three launches are the latest move by Columbia Threadneedle to position itself as a leading provider of smart beta ETFs. On 11 May 2016 the firm announced an agreement to acquire investment adviser Emerging Global Advisors (EGA) with significant experience managing smart beta portfolios focused on emerging markets.
Assets in smart beta ETFs are predicted to boom over the next ten years reaching $1tn globally by 2020 and $2.4tn by 2025, according to a report issued in May by BlackRock’s iShares. The projections reflect an annual organic growth rate of 19%, double the growth rate of the overall ETF market.
Research from FTSE Russell also found that growth in the sector, according to a survey of global institutional investors has come from European asset owners, particularly those who have had smart beta allocations for more than two years. Another report issued by global ETF provider Invesco PowerShares found that high dividend and low volatility strategies may be significant avenues of future growth for smart beta assets with 72% and 69% of first time smart beta users, respectively, stating they are likely to consider such strategies. Such findings bode well for the popularity of Columbia Threadneedle’s recent equity income launches.
Other recent developments in the space include the launch by New York-based asset manager IndexIQ of the first ETFs to introduce a momentum investing approach to fixed income markets.