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Lattice Debuts ETF Industry with Three Products - ETF News And Commentary

Zacks Equity Research

San Francisco-based investment management firm – Lattice Strategies – which believes that disciplined, intentional and systematic allocation of risks is the most influential contributor to long-term growth of capital, has recently forayed into the ETF world with three new products.

The products – Lattice U.S. Equity Strategy ETF (ROUS), Lattice Emerging Markets Strategy ETF (ROAM) and Lattice Developed Markets (ex-US) Strategy ETF (RODM) –charge 35 basis points, 65 basis points and 50 basis points respectively (read: Lattice Files for REIT and Global Small Cap ETFs).

ROUS in Focus

ROUS tracks the investment results of the Lattice Risk-Optimized U.S. Equity Strategy Index to provide exposure to U.S. equities. The index seeks to improve returns by improving the factor-attributes of the portfolio along the dimensions of value, quality, and momentum. Also, the constituents of the index are risk-and factor-adjusted twice annually and also screened for liquidity.

Moreover, the index seeks to reduce concentration risk in large and mega cap stocks by diversifying well across individual stocks. This strategy ensures that none of the individual holdings have more than 1.5% exposure in the fund and the top ten holdings form just 10.47% of total fund assets. Currently, Best Buy, Kroger and Valero are the top three holdings in the fund.

Sector-wise, Financials dominates the fund with 19.3% allocations, closely followed by Technology, Consumer Discretionary, Healthcare and Industrials, each with double-digit exposure (read: Retail ETFs Hitting 52-Week Highs on Solid Q4 Earnings).

The fund is likely to face competition from a number of large-cap value ETFs. iShares Russell
1000 Value Index Fund
(IWD) with an asset base of $26.3 billion and Vanguard Value ETF (VTV) with an asset base of $18.3 billion are some the popular products in the space.

ROAM in Focus

ROAM tracks the Lattice Risk-Optimized Advancing Markets Strategy Index to provide exposure to emerging market countries. The index seeks to improve diversification and resiliency by reducing concentration in larger, export-driven emerging economies while increasing exposure to smaller and more locally centered emerging economies.

With this approach, the fund currently provides exposure to 16 countries. Taiwan (9.06%), Malaysia (9.03%) and Poland (8.47%) take the top three positions. Philippine Long Distance, Malayan Banking and Ecopetrol SA take the top three spots in the fund.
ROAM is likely to face competition from some of the most popular funds in the emerging market space. Vanguard FTSE Emerging Markets ETF (VWO) is the most popular fund in the space with an asset base of $46.9 billion and an average daily volume of 13.9 million shares. However, unlike ROAM, VWO allocates roughly one-fourth of its assets to China followed by double-digit exposure to Taiwan and India.

iShares MSCI Emerging Markets Index Fund (EEM) with an asset base of $32.4 billion and WisdomTree Emerging Markets High-Yielding Equity Fund (DEM) with an asset base of $2.3 billion are some of the other popular funds in the space (see Broad Emerging Market ETFs here).

RODM in Focus

The fund tracks the Lattice Risk-Optimized Developed Markets (ex-US) Strategy Index to provide exposure to companies located in the major developed markets of Europe, Canada and the Pacific Region.

Country-wise, Japan takes the top spot with 18.4% allocation, followed by U.K. and Canada with 13.86% and 11.92% allocation respectively. As far as individual holdings are concerned, none of the stocks have more than 1% in the fund, ensuring a well-diversified portfolio.

The fund is likely to face competition from a number of foreign ETFs. iShares MSCI EAFE Index Fund (EFA) is the most popular fund in the space with an asset base of $55.6 billion and charges 34 basis points as fees. Japan and U.K. take the top two spots with 21.4% and 20.6% allocation respectively (see Broad Developed World ETFs here).

Apart from this, Vanguard MSCI EAFE ETF (VEA), Schwab International Equity ETF (SCHF) and PowerShares FTSE RAFI Developed Markets ex-US Portfolio (PXF) are some of the other funds which might pose as competitors for the newly launched fund.

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