Canadian Market

SBEA: Combining man and machine to create a cutting-edge ETF

Art Johnson, founder, CIO and COO of SmartBe Wealth, made an appearance on BNN Bloomberg to talk about his firm's new cutting-edge ETF.

"What we wanted to do was to take the best ideas in quantitative portfolio management, and then make it very sophisticated, but make it very simple for clients (investors) to own. Probably the biggest coming wave in the disruption of ETFs is on the 'active index' side, i.e. there's going to machine learning and A.I., things like that," says Johnson. "These are difficult subjects for a lot of people. We wanted to craft our first ETF to include the premier anomalies that you would want from a quant portfolio manager, and then make them super easy for an client to own. So, we would handle the sophistication, and our clients would handle the returns."

The new ETF – SmartBe Global Value Momentum Trend Index ETF – there's a lot to it – ticker SBEA – launched January 31.

"What you really get, in this new ETF, is... there are two academic ways that we've decided in the quant land, that you could make money as an investor, and they are simple ways, if you think about it. One is to buy strong stocks; it's called a momentum portfolio. The other one is to buy cheap stocks, and, portfolio managers have been doing this for years and years, so there's no mystery to these."

"What happens is when a quant portfolio manager looks at these things, we take them and we start to screen in a more robust way, to get the absolute concentrated versions of those."

"The problem is when you take one ETF with one of those and another ETF with a value [screen], its very hard to manage for a client. The two strategies actually act very differently," added Johnson.

AA's Note
Having two separate momentum and value ETFs in a portfolio makes it difficult because when one of the tactics is under-performing, investors may look at that and want to abandon one tactic for the other – a less than optimal decision – so combining value and momentum tactics in one package may solve the difficulty by reducing that tendency.

So we decided to do it in Canada, International, and U.S. markets, using our value and momentum screens for each region, and combining these 6 components, so it's a very easy, and good, portfolio to own."

"The MER is 0.86%."

"In terms of the volatility, the ETF has a standard deviation of 8, which is a relatively low to medium volatility."

"When investors are looking for a way to be involved in this space, involved in these markets, that's what you want. We also have in the ETF, trend following, which is the only cheap academic way to eliminate some of the downside involved in our whole portfolio, so we've incorporated everything in there."


Video © BNN Bloomberg

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