The Strategy Behind Nationwide’s Strategic Beta ETFs
As one of the newest players in the ETF industry, Nationwide Mutual Insurance Co. is educating advisors about its suite of strategic beta ETFs that seek to deliver improved risk-adjusted returns by enhancing diversification and seeking reduced volatility.
In September 2017, the insurance giant launched the Nationwide Risk-Based U.S. Equity ETF (NYSEArca: RBUS), Nationwide Risk-Based International Equity ETF (NYSEArca: RBIN) and Nationwide Maximum Diversification U.S. Core Equity ETF (NYSEArca: MXDU).
In a new educational video about its strategies, Nationwide explains how its ETFs track indexes developed by two institutional managers at the forefront of next generation index design: Rothschild Risk Based Investments LLC and Tobam.
“Rothschild’s index construction process treats risk not as a random output, but rather as a controlled input. Rothschild’s indexes are designed to provided upside potential while potentially hedging against losses stemming from volatility,” Nationwide explains.
Meanwhile, Tobam’s index construction process focuses on minimizing correlations among securities in order to maximize portfolio diversification.
“The Tobam approach seeks to create indexes that deliver higher risk adjusted returns relative to market cap weighted strategies by capturing the full equity risk premium,” says Nationwide. “By avoiding the unattended risks typically associated with market cap weighted investments, Nationwide ETFs can serve as a core holding or a complement to other strategies for investors seeking broad equity market exposure with the potential for enhanced long term performance with less risk.
RBUS tries to reflect the performance of the R Risk-Based US Index, a rules-based, equal risk-weighted index designed to provide exposure to U.S. large-cap companies with lower volatility, reduced maximum drawdown and improved Sharpe ratio, compared to a traditional market cap-weighted index, according to a prospectus sheet.
Similarly, RBIN tries to reflect the performance of the R Risk-Based International Index, a rules-based, equal risk-weighted index of large-cap companies in developed markets outside the U.S. and Canada with lower volatility, reduced maximum drawdowns and improved Sharpe ratio. RBIN and RBUS share a similar indexing methodology.
Finally, MXDU tries to reflect the performance of the TOBAM Maximum Diversification USA Index, a diversified rules-based index of large- and mid-sized U.S. companies that uses a quantitative model to weight companies to maximize the so-called Diversification Ratio of the index. The Diversification Ratio is a proprietary metric based on the volatility of each index constituent and its correlation to other constituents.
RBUS has a 0.30% expense ratio, RBIN has a 0.42% expense ratio and MXDU has a 0.34% expense ratio.
For more information on new fund products, visit our new ETFs category.