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Spa ETF launches first fundamental ETFs in London


Newly established exchange-traded fund provider Spa ETF has launched its first three ETFs on the London Stock Exchange, with three more scheduled for introduction later this month.

Newly established exchange-traded fund provider Spa ETF has launched its first three ETFs on the London Stock Exchange, with three more scheduled for introduction later this month. The funds track fundamentals-based US equities indices produced by US research firm MarketGrader.

The launch, marked by Spa ETF director Daniel Freedman opening the day’s trading session on the exchange, brings the first enhanced ETFs to the London market, where exchange-traded funds are booming following their exemption from stamp duty in February.

The new funds comprise the MarketGrader 40, 100 and 200 ETFs, based on a basket of North American equities selected through 24 quantitative filters based on growth, value, profitability and cash flow. The constituents of the indices are drawn from a universe of more than 5,600 stocks, and the stocks are equally weighted.

The next three ETFs, to be launched at the end of September, will be the MarketGrader Large Cap, Mid Cap and Small Cap funds, based on the top 100 North American stocks within each market capitalisation group.

Freedman describes the MarketGrader ETFs as ‘next-generation exchange-traded funds’ that are designed to outperform products based on traditional capitalisation-based indices, as well as most active fund managers.

He notes that since the MarketGrader 40 index went live in 2003 it had returned 67.75 per cent up to September 7, compared with 29.63 per cent for the most widely tracked US equity index, the S&P 500.

According to Freedman and his colleagues, the funds are likely to be in demand from both individual investors and institutions, including hedge funds, and may be combined with market cap-based index funds to boost the performance of a portfolio without increasing volatility to the same extent.

The launch of the Spa ETF funds follows the recent introduction in Europe of the FTSE RAFI fundamentals-based ETFs that use a methodology created by another US index provider, Research Associates.

Ashok Shah, chief investment officer of the funds’ investment manager, sister company London & Capital, says Spa ETF talked to Research Associates during the process of planning the funds, but decided to partner with MarketGrader because of its larger universe of stocks and its most extensive and refined range of selection criteria.

The two groups have worked together since 2004, when London & Capital created a daily-traded European medium-term note for its investment management clients based on the MarketGrader 40 index.

London & Capital is an independent investment advisory and management firm with USD3bn in assets under management. It has substantially the same shareholders as Spa ETF and is also headed by Freedman.

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