Spa ETF International, a specialist provider of exchange-traded funds (ETFs), has been established to launch a family of ETFs based on the fundamental quantitative methodology of research provider MarketGrader.
Spa ETF International will use MarketGrader’s quant-based approach to introduce a suite of ETFs in Europe over the next 12 months. The ETFs will cover North American-listed companies.
The firm will build upon the success of the MarketGrader 40 Index, according to Daniel Freedman, director Spa ETF International. Since the MarketGrader 40 Index was launched in January 2003, it has achieved annualised returns of 29.75%, outperforming the S&P 500 by 17.8%, he says. The initial range of ETFs will include the MarketGrader 40 index.
“It has been estimated that 85% of fund managers in Europe under-perform US indices such as the S&P 500,” comments Freedman. “We are confident that MarketGrader will continue to exceed returns from both the main US indices and the majority of active fund managers over the long term,” he continues.
London & Capital, an independent firm of investment advisors and fund managers, will support Spa ETF International with services including investment expertise, research, quantitative analysis and regulatory authorisation. “The rise of the fundamental index is causing a market shift. European investors are now looking beyond the traditional market cap-weighted indices for superior performance,” comments Neil Michael, head of quantitative strategies, London & Capital.
Key to the fundamental approach is a mechanism for equally weighting stocks so that no single company dominates the index, according to Freedman.
The ETFs will track the performance of stock indices created by the MarketGrader quant-based methodology. MarketGrader uses 24 quantitative filters within four main areas (growth, value, profitability and cash flow) to carry out a fundamental evaluation of more than 5,600 North American stocks. Each MarketGrader index periodically adjusts its holdings to ensure an equal weighting for all stocks and that holdings are of optimal grade, the firm says.
In a report entitled ‘Exchange Traded Funds – Year End 2006 Global Review’, Morgan Stanley estimates that the ETF market will be USD 2 trillion in size by 2011, up from USD 573 billion today. Last year the total value of assets under management held in ETFs in Europe increased by 63%. Currently, though, the “under-usage” of ETFs outside the US is “staggering,” according to Freedman, with only 81 firms using them in the UK compared with 1459 in the US.