A New Smart Beta ETF to Diminish Downside Risk in a Changing Market

MarketsETF Trends

As market conditions grow more volatile, investors can utilize the new Recon Capital Managed Risk exchange traded fund to smooth out a bumpy ride.

Recon Capital recently came out with the Recon Capital USA Managed Risk ETF (NYSEArca: USMR). USMR has a net expense ratio of 0.30%.

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USMR will try to reflect the performance of the STOXX USA 900 Minimum Variance Unconstrained USD Index, which follows a rules-based methodology that weights securities to minimize the portfolio variance compared to the parent STOXX USA 900 USD Index.

“The unconstrained version is a novelty as it provides a strategy index that is minimized for volatility, but is not restricted to follow the underlying base index too closely,” Matteo Andreetto, chief executive officer of STOXX Limited, said.

Specifically, the underlying index may screen for risk factors like value, growth, medium term and short-term momentum, leverage, liquidity and exchange rate sensitivity. Investors will also have access to Axioma’s Factor Risk Model, which utilizes a portfolio optimization algorithm that is normally used by large large institutions and money managers.

The ETF rebalances monthly to adapt to changes in the market as a way to provide optimal risk-adjusted returns.

“We believe this ETF provides investors with a fully-fledged portfolio management strategy that strives to consistently give the optimal allocation in order to seek to reduce risk around market moving events like government referendums or interest rate hikes,” Kevin Kelly, Portfolio Manager and Chief Investment Officer of Recon Capital Partners, said in a press release. “This involves dynamically rotating around stock, industry, and factor allocations, taking into account current market information while also rebalancing monthly to the dynamic and ever-changing markets. The objective of the ETF is to seek to provide the most optimal portfolio for risk-adjusted returns.”

Sector weights include consumer goods 31.5%, consumer services 22.2%, utilities 15.3%, healthcare 10.9%, financials 7.4%, industrials 6.6%, telecom 4.5%, tech 1.5% and basic materials 0.1%.

Top holdings include Clorox 5.5%, Southern Co. 4.6%, Hershey 3.6%, Costco Wholesale 3.3% and Rite Aid 3.1%.

Furthermore, yield-hungry investors may also enjoy decent yields as the USMR’s underlying index shows a 3.1% yield.

For more information on new fund products, visit our new ETFs category.

This article was provided by our partners at ETFTrends.