The indices aim to outperform the S&P 500 and the majority of active US managers over the long term.
ETFs are similar to tracker funds that passively track an index but the difference is they can be traded like a share, enabling investors to get in and out of the market quickly, while providing diversity of shares like an Oeic or unit trust.
The MarketGrader 40 Index evaluates more than 5,600 US equities on a daily basis and selects a basket of 40 stocks every quarter that are based on a company’s rank. Overall attractiveness and diversification in terms of sector and size are important factors. MarketGrader 100 and MarketGrader 200 use the same process to select a basket of 100 and 200 stocks respectively, although rebalancing occurs twice a year.
The MarketGrader indices are constructed on the basis of companies’ final rankings and all companies must have a market capitalisation of at least $100m in the case of the MarketGrader 40 and 100 indices and $250m for the MarketGrader 200 index. No economic sector can represent more than 30 per cent of the MarketGrader 40 index, 25 per cent of the MarketGrader 100 Index or 20 per cent for the MarketGrader 200 index.
All indices are equally weighted, which means that at the beginning of every rebalance, the companies will be awarded an equal dollar value.
These ETFs provide access to the US market through a different route to the S&P 500 and may be used as a low-cost diversifier within a portfolio. However, despite the growing popularity of ETFS, they are most likely to be used by wealth managers and institutional investors such as multi-managers.