ETF NEWS - ULTUMUS

Dead Retail, Smart Junk

Written by Ultumus | 9 July 2018

ProShares lists internet shopping ETF

Maryland-based alternative ETF specialist ProShares is listing its third internet shopping thematic ETF, this time aimed at provide diversified long-only exposure to the growth of online retail.

The ProShares Online Retail ETF (ONLN) will track an in-house index that measures the performance of online retailers.

Index construction begins by setting the parameters of the universe, which includes any companies listed on US exchanges, including foreign companies. To then qualify for inclusions, companies must “be classified as doing business as an online retailer, an e-commerce retailer, or an internet and direct marketing retailer according to standard industry classification systems,” the prospectus says.

Companies must have a market capitalization of at least $500 million, a six-month daily average value traded of at least $1 million and “meet other requirements in order to be included in the Index,” the prospectus says. Although it doesn’t specify what those other requirements are.

Companies are weighted in the index by market capitalisation, subject to limits. These limits restrict the weighting of any single company (Amazon, one presumes) to 24% of the index total and prevent the weight of the biggest handful of companies collectively exceeding 50% of the index’s weight. It also restricts foreign companies to a maximum of 25% weight. The index is rebalanced monthly.

Smart beta junk bond ETF from FlexShares

FlexShares, a subsidiary of Chicago-based Northern Trust, is bringing in a new high yield bond ETF that tries to provide an even higher yield than most junk bond ETFs, while screening for quality.

The FlexShares High Yield Value-Scored US Bond Index Fund (HYGV), starts with Northern Trust High Yield US Corporate Bond Index as its parent index. From there, HYGV restricts the selection pool to bonds with more than 18 months to maturity and an outstanding principal balance of at least $150 million.

From this eligible universe, HYGV picks its bonds based on the fundamentals of the companies issuing the bonds. Northern Trust will be charged with assessing companies’ fundamentals in accordance with the index rules, the prospectus indicates.

At rebalancing, constituents’ weights will be rebalanced to ensure that:

(i) the effective duration of the HYGV similar to the parent index;

(ii) HYGV’s sector exposure is within +/- 8% of the sector exposure of the parent index;

(iii) each issuer is capped at 5% of the fund’s weight.