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Mirae Asset has launched a smart beta small cap fund that uses liquidity as its first filter and then 2 factors – quality and momentum –to select 100 stocks from the 250 stock index. Its Small Cap 250 Momentum Quality 100 ETF and FoF can potentially beat actively managed small cap funds with its twin focus on quality and momentum factors, says Umesh.
Momentum is measured for 6 and 12 months and its short list is independent of quality parameters. A separate quality filter is then applied which considers consistent growth in earnings and returns parameters. A composite score based on these two factors is determined, to which a market cap weight is applied to finally get stock weights of the top 100 stocks that find their way into this factor based portfolio.
While it is true that imposing a quality factor can potentially eliminate promising young companies with short track records, Umesh believes this also safeguards the portfolio from significant downside risk that comes along with investing in very young businesses. On a risk-adjusted basis, he believes a mix of momentum and quality help capture healthy upside while protecting from sharp drawdowns from bad stock choices.
Very interesting & first of its kind smallcap etf
Interesting concept with unique qualifying metrics indeed.
