SAN DIEGO (ETFguide.com) - Over
the past few years, funds that use alternative security selection and weighting
methods have been one of the fastest growing categories in the exchange-traded
fund (ETF) business.
Offering these sort of funds is
SPA, which launched its lineup of U.S. listed ETFs during the fourth quarter of
2007.
Daniel
Freedman, Director of SPA ETFs takes time to talk with us about their progress.
How many ETFs does SPA
manage?
DF: We currently offer six ETFs. Each is listed on
three exchanges: the American Stock Exchange, the London Stock Exchange and the
Borsa Italiana.
SPA ETFs
is an innovative, independent provider of second generation ETFs and they were
established to offer private and institutional investors access to ETFs tracking
fundamental U.S. focused indices.
As of
February 20th, 2008 our worldwide assets under management was $58,68 million.
What market capitalization segments do the U.S.
listed SPA ETFs cover?
DF: Currently, SPA ETFs offer a
Small Cap ETF (Ticker:
SSK), Mid Cap ETF (Ticker:
SVD) and Large Cap ETF (Ticker:
SZG), as well as three multi-cap ETFs.
The Small,
Mid and Large Cap funds each contain 100 appropriately sized stocks, and are
rebalanced semi-annually. The SPA Market Grader 40 contains 40 stocks and is
rebalanced quarterly, and the SPA MarketGrader 100 and 200 contain baskets of
100 and 200 stocks, respectively, and are rebalanced semi-annually.
All of our
ETFs track indices which choose stocks based on a company's fundamental
attractiveness, combined with sensible diversification in terms of sector
distribution and market capitalization.
How does the ETF marketplace in Europe compare
to the United States?
DF:Europe is about ten
years behind the U.S. in terms of ETF growth, but is quickly catching up.
In the
past, differences in jurisdictions and tax laws made listing in different
countries difficult and as a result limited ETFs’ growth in Europe. Now, more
standardized regulations make it easier to list on different exchanges – if you
list in one country you can cross-list in others. This makes it easier for ETFs
to list in larger markets and makes the products much more accessible.
Here's an
example of Europe's progress: Assets
increased by 50.3 percent in 2007, while in the US they increased by 35 percent.
The London market alone had over 100 new listings of ETFs in the last 9 months
of 2007, making for a total of 150 listings.
Each of the SPA ETFs use
a similar index strategy. Can you explain more?
DF: Sure. SPA ETFs have
an exclusive ETF relationship with MarketGrader, an innovative research company
that’s developed a proprietary formula for evaluating companies and creating
indices.
MarketGrader's formula grades 5,700 listed US companies, including American
Depository Receipts (ADRs), against 24 key fundamental factors, within four main
categories: growth, value, profitability and cash flow. The highest rated
companies are then measured against sector, market cap and rebalancing rules
specific to each index.
Each SPA
ETF tracks a specific MarketGrader index. And while all MarketGrader indices
follow certain common rules, variations of these rules govern each index. This
ensures each index tracks a different basket of companies and that all of our
funds share an investment philosophy – but offer different benefits.
The
indices are computer generated, which ensures there is no human interaction or
bias. Additionally, they are fundamentally driven, equally weighted and
regularly rebalanced.
What sort of portfolio turnover do the SPA ETFs
have?
DF: Our funds have ranged in
turnover from 50 to 70 percent.
We view tax efficiency as a key
benefit of structuring these investments as ETFs owing to the creation
redemption process.
What's your take on the
prospect of actively managed ETFs?
DF: Well, it certainly represents a
good opportunity, as evidenced by the $13 trillion mutual fund industry.
SPA ETFs
might like to participate in that type of market through optimized portfolios
using the efficient frontier seeking to optimize portfolio returns and mitigate
risk.
Is SPA Planning more ETFs in 2008?
DF:
Yes. MarketGrader plans to expand its family of indices to include major market
sectors and as part of the broader plan to offer MarketGrader Indices across a
full range of investment categories, SPA ETFs has filed papers with the
Securities and Exchange Commission (SEC) seeking to launch additional
exchange-traded funds (ETFs).
These
funds are expected to launch in the near future. Be on the lookout for more news
and information about how they can work within a portfolio.
