Smart beta gains traction as SSgA SPDR lists value and momentum ‘tilt’ ETFs

Oct 29th, 2012 | By | Category: Equities

SSgA’s has listed two new SPDR ETFs on the NYSE Arca: the SPDR S&P 1500 Value Tilt ETF (VLU) and the SPDR S&P 1500 Momentum Tilt ETF (MMTM).

Smart beta gains traction as SSgA SPDR lists value and momentum ‘tilt’ ETFs

SSgA’s latest ETFs offer investors an opportunity to access potential sources of outperformance by tracking alternatively-weighted, so-called ‘smart beta’ indices.

The new funds offer investors an opportunity to access potential sources of outperformance by tracking alternatively-weighted, so-called ‘smart beta’, indices.

The SPDR S&P 1500 Value Tilt ETF seeks to track the performance of the S&P 1500 Low Valuation Tilt Index.  The index applies an alternative weighting methodology to the S&P 1500 Index so that stocks with relatively low valuations are overweight relative to the S&P 1500 Index and stocks with relatively high valuations are underweight.

In constructing the index, Standard & Poor’s (S&P) estimates the valuation of each stock in the S&P 1500 Index based on the ratio of its price to its level of earnings, cash flow, sales, book value, and dividends. The weight of each stock in the index is proportionate to its market capitalisation and sub-portfolio allocation.

The SPDR S&P 1500 Momentum Tilt ETF seeks to track the performance of the S&P 1500 Positive Momentum Tilt Index.  The index applies an alternative weighting methodology to the S&P 1500 Index so that stocks with relatively high momentum are overweight relative to the S&P 1500 Index and stocks with relatively low momentum are underweight.

In constructing the index, S&P estimates the momentum of each stock in the S&P 1500 Index based on its price performance over the 11 months ending one month before the index rebalancing date, and ranks all 1,500 Index constituents in order of momentum.

James Ross, senior managing director and global head of SPDR ETFs and head of Intermediary Distribution at State Street Global Advisors, said: “Providing advisors and investors with unique opportunities to take advantage of sources of outperformance relative to standard cap-weighted indexes and combining the advantages of value and momentum tilt investing with the benefits of exchange-traded funds, our new SPDR Tilt ETFs further illustrate the growing popularity of advanced beta investment strategies.”

He added: “We have strong expertise in the advanced beta space which we define as an objective, consistent, transparent process for capturing some investment exposure, while retaining the benefits of traditional indexing.”

Both funds come with an expense ratio of 0.35% per annum.

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