Among the group of small exchange traded fund (ETF) issuers, some have built a strong place in the market while others had to struggle hard to get a foothold either due to a lack of investor interest or low AUM. Javelin Investment Management, the Princeton, New-Jersey based asset manager, is one such ETF issuer facing a hard time in establishing its position in the market place. JETS two years back had launched a fund named the ‘JETS Contrarian Opportunities Fund’ only to close it last year.
However, the asset manager seems to have renewed its attempt in the ETF world with the launch of a new ETF, as confirmed by the recent filing for a JETS Deep Value Index Fund. Although some key information was not available in the SEC filing—such as expense ratio or ticker symbol-- we have highlighted some of the important details below:
The proposed ETF has been designed to track, before fees and expenses, the performance of the Dow Jones Deep Value Index. The Dow Jones Deep Value IndexSM is designed to reflect the performance of companies meeting the Deep Value investment criteria in the market, and to reflect the industry breakdown of the global market. The fund seems to use the full replication strategy thereby investing all or substantially its entire asset in the underlying index (read Mid Cap ETF Investing 101).
The fund, if ever approved, will seek to achieve its investment objective by using a representative sampling strategy, which means that it will invest in a sample of the securities in the Underlying Index whose risk, return, and other characteristics appear to be similar with the risk, return, and other characteristics of the Underlying Index as a whole. The fund also looks to invest some portion of its asset in securities other than those in the index which may help the fund to better follow the Underlying Index.
Deep value investing is suitable for those who are looking to invest in companies which are fundamentally sound and are currently undervalued by the market. Value investing is about buying a stock that is trading at a low multiple and sees favorable metrics across the board (see more in the Zacks ETF Center).
Meanwhile, deep value investing seeks to purchase stocks at an even greater discount to their intrinsic value, looking at only the most favorable securities from a variety of key metrics such as Price/Book ratio and Price to Earnings ratio.
In addition to passing these screens, stocks will also have to have a strong liquidity base and low levels of debt. These two factors will ensure that the products are easily tradable and that they aren’t masking high value with big amounts of debt (read 11 Great Dividend ETFs).
Deep value investing has been a very popular and intriguing idea to many investors. Below we will discuss two ETFs that use a value investing approach for ETF investing and could one day be competitors with the JETS fund if it ever hits the market. While there are a number of value securities, both the First Trust Strategic Value Index Fund (FDV) and the Guggenheim S&P 500 Pure Value ETF (RPV) could pose as formidable competition in the space to a future JETS ETF.
Launched in June 2006, First Trust Strategic Value Index Fund (FDV) is a passively managed ETF designed to track the performance of the Credit Suisse U.S. Value Index, a benchmark that is dominated by the stocks having the highest valuation based on the HOLT proprietary valuation scoring model.
With total assets of about $3.4 billion, FDV is the only ETF that tracks the performance of the Credit Suisse U.S. Value Index and is one of the more popular value-focused ETFs on the market today.
The stocks in the Credit Suisse U.S. Value Index are selected on the basis of HOLT valuation that scores the company on liquidity and tradability. The ETF replicates Credit Suisse U.S. Value Index by significantly investing 90% of its assets in the stocks that the index holds.
FDV has more than 28% of its assets invested in the financial sector which holds the top position in sector holdings followed by health care and energy, while materials and consumer discretionary are given the least amount of assets. The fund holds a total of 50 stocks with the top three spots going to Apple Inc., American International Group, and Capital One Financial (see Three Financial ETFs Outperforming XLF).
The concentration level in the top 10 holdings is 21.78% which suggest that the fund is spread out among other companies as well. Over a period of one year, the fund has delivered growth of 10.8%.
The other fund which can give good competition to a possible JETS Deep Value Index Fund is RPV. Launched in March 2006, Guggenheim S&P 500 Pure Value ETF (RPV) is a passively managed ETF designed to track the performance of the S&P 500 Pure Value Index, an index dominated by the stocks having a strong value based on book value to price ratio, earnings to price ratio, and sales to price ratio. With total assets of about $9.3 billion, RPV is the only ETF that tracks the performance of the S&P 500 Pure Value Index.
RPV is heavily exposed to the financial sector as this takes up the top spot in its basket. Consumer discretionary and energy firms also receive large allocations while the product is light on utilities, materials, and telecommunication firms. From an individual holdings perspective, Whirlpool Corporation is the top firm, but it is closely followed by fellow large caps Computer Sciences Corporation, American International Group, and Genworth Financial.
In total, however, the fund holds 116 securities. Still, the concentration level in the top ten is tolerable, coming in at 20.14% which suggests that the fund is well spread out among other companies. Over a period of one year, the fund has delivered a return of 5.9% (read Beware These Three Volatile Financial ETFs).
Both RPV and FDV have succeeded in adding to their respective asset base and have delivered good returns over a period of one year thereby setting a high standard for a possible JETS Deep Value Index Fund.
Yet while there will certainly be good competition, there is clearly a high level of demand in the market as well. Given this, if the JETS Deep Value Index Fund is ever approved for the public, it could amass a decent following and return the company to some level of ETF prominence once again.
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