UBS launches factor-tilted US equity ETF

May 19th, 2017 | By | Category: Equities

UBS Asset Management has launched the “alternative beta” UBS MSCI USA Select Factor Mix UCITS ETF (USFM) on the London Stock Exchange, providing access to US equities while tilting the portfolio towards various factors that have historically provided risk-adjusted outperformance over the long term.

UBS unveils new US alternative beta equity ETF

The UBS MSCI USA Select Factor Mix UCITS ETF tilts its portfolio to increase exposure to value, quality, momentum, volatility, size and yield risk premia.

The smart beta fund tracks the MSCI USA Select Factor Mix Index which aims to capture the performance of large, mid and small cap securities of the US equity markets.

The index is constructed using a combination of six factor indices and is designed to represent the performance of long-term risk factors such as momentum, value, quality, shareholder yield, volatility and size.

Andrew Walsh, head of passive and ETF specialist sales UK & Ireland at UBS, said: “Investors are increasingly seeing alternative beta as an important component of portfolios, and assets in factor ETFs and ETPs now total more than $500 billion globally.

“This new ETF allows investors to gain access to US equities via an index which employs a set of factor-screens, aiming to improve returns, reduce risk and enhance diversification.”

The ETF trades in pound sterling and has a total expense ratio (TER) of 0.30%.

As of the end of April, the underlying index had 2,250 constituents and is well diversified with the largest stock within the index, Apple, accounting for just 3%. The index’s largest sector exposure is information technology (23.3%), followed by industrials (14.7%) consumer discretionary (13.4%), health care (11.3%) and financials (11.2%).

Indicating its potential to provide superior risk-adjusted returns compared to traditional market cap-weighted benchmarks, the index has returned 8.1% per annum over the past ten years with an annualized standard deviation of 14.6%, while the MSCI USA IMI Index returned 6.8% per annum with an annualized standard deviation of 15.8% over the same period.

Index performance UBS ETF

Source: MSCI.

In terms of comparable offerings, the ETF will likely come up against funds such as the iShares Edge MSCI USA Multifactor UCITS ETF (LON: IFSU) and the Amundi USA Equity Multi Smart Allocation Scientific Beta – UCITS ETF (Euronext Paris: SMTU)

The iShares ETF tracks the MSCI USA Diversified Multiple-Factor Index which provides exposure to US large and mid-caps while tilting towards value, momentum, quality and size factors. It has $40 million in assets under management (AUM) and a TER of 0.35%.

The Amundi ETF tracks the Scientific Beta United States Multi-Beta Multi-Strategy Four-Factor ERC Strategy Index which provides exposure to value, size, momentum and low volatility factors. The fund has $10m in AUM and a TER of 0.33%.

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