Legg Mason launches small-cap smart beta ETF

Jul 18th, 2017 | By | Category: Equities

Legg Mason has launched a multi-factor ETF that gives exposure to small-cap US equities. The Legg Mason Small-Cap Quality Value ETF (Nasdaq: SQLV) tracks the Royce Small-Cap Quality Value Index, which has been developed by small-cap specialists Royce & Associates.

Legg Mason launches small-cap smart beta ETF

Legg Mason now offers a total of 11 active ETFs.

Chris Clark, CEO of Royce Funds, commented: “This product distils decades’ worth of our experience and expertise in small caps as well as out team’s research into the success of certain factors in small-cap returns. This particular approach, investing in stocks that we think are at the intersection of value and quality, has been among our most successful strategies for many years.”

The methodology selects high-quality stocks with attractive valuations from the Russell 2000 Index. Quality is defined by profitability, as measured by return on invested capital, historic stability of profitability, and debt coverage. Value is defined by free cash flow to enterprise value.

After the securities are scored by the quality and value metrics, each securities’ momentum score, which is based on price performance over the past 30 days, is used to determine the timing of the addition or deletion of the security as an index constituent.

The index is weighted using a composite score based on company fundamentals including book value, revenue, free cash flow and dividends. To avoid over-concentration, the maximum weight allowed for individual stocks and sectors is set to 3% and 25% respectively.

There are 245 constituents in the fund with the largest exposure being Amtrust Financial with a weight of 0.9%.

The fund is rebalanced quarterly and has a total expense ratio of 0.60%.

The latest launch brings the total number of ETFs offered by Legg Mason to 11, the largest of which is the Legg Mason International Low Volatility High Dividend ETF (LVHI) which has $54m in assets under management.

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