Zacks Earnings Constant Portfolio ETF
SUMMARY
Active ETF that invests in portfolio of approximately 100 US securities with stable EPS regardless of economic cycle.
ANALYSIS
Bottom Line: Fairly good chance of gathering assets due to existing distribution network and investors in current funds. Strategy is straightforward and offers stability rather than outsize returns, great for the mature pre-retirement crowd.
The investment adviser, Zacks Investment Management, is a fairly successful concern as it has $5 billion under management in various mutual funds and mandates, in addition to institutional strategies. They are not related (that I can tell) to Zacks Investment Research which is involved in ETFs with various ETF sponsors. However, both are based out of Chicago so there might not be an obvious link.
The investment strategy of this newly filed ETF, the strategy resembles the Adviser's existing mutual fund, the Zacks All-Cap Core Fund (CZOVX) (AUM $50 million - launched in 2006) in terms of focus on all caps, earnings analysis, and the number of target companies in the fund. CZOVX charges 1.00% net expense ratio, with possibly other regular mutual fund fees such as 12b-1, etc.
Zacks Investment Management currently has two exemptive relief applications filed, for passive and active ETFs. Neither have yet been approved.
The adviser has a good following by the major wirehouses and a long track record. Zacks' incursion into ETFs is a logical one to broaden distribution rather than substitute their existing investor base. Furthermore, current distributors may see their ETF offering as an alternative response to their investors' desires for ETF holdings.
Ticker: TBD
Exchange: TBD
Expense ratio: TBD
Original filing date: March 18, 2021
Effective date: June 1, 2021
Listing Date: TBD
CUSIP: TBD
Active: Yes
Index / Benchmark: [tbd]
Investment Objective:
Seeks to provide
long-term total returns and minimize capital loss.
Investment Strategy:
Portfolio of companies with track record of moving through recessionary periods with little impact on aggregate earnings growth relative to the overall equity market.
Universe of stocks: Top 400 small, mid, large cap US equity securities not in financial, energy, utility, precious metals, or commodity sectors.
Quantitative Analysis:
200 companies from this universe with highest historic and forecasted EP stability:
- Historic EPS stability is determined by evaluating the variability of the company’s EPS over the past 20 years.
- Forecasted EPS stability is determined by evaluating the forecasted variability of the company’s earnings over the next 3 years.
Qualitative Analysis:
- Financial statement filing consistency
- Profitability
- Earnings stability in recessionary periods
50 - 120 companies with highest EPS stability selected for portfolio.
Constituents: 50 - 120
Adviser: Zacks Investment Management, Inc.
Adminstrator: Gemini Fund Services, LLC
Fund accountant: Gemini Fund Services, LLC / Brown Brothers Harriman
& Co.
Custodian: Brown Brothers Harriman
& Co.
Distributor: TBD
Legal counsel: Greenberg Traurig LLP
External accounting: TBD
Prospectus is here.
Principal Investment Strategies
The Fund pursues its investment objective by constructing a portfolio of companies that exhibit a track record of moving through recessionary periods with little to minimal impact on aggregate earnings growth relative to the overall equity market.
The Fund’s portfolio is composed of 50-120 U.S. exchange-listed companies with the highest historic and forecasted earnings per share (“EPS”) stability. Historic EPS stability is determined by evaluating the variability of the company’s EPS over the past 20 years. Forecasted EPS stability is determined by evaluating the forecasted variability of the company’s earnings over the next 3 years. Those companies with the least variability are selected for the Fund’s portfolio. These quantitative screens are combined with the qualitative judgment of the portfolio manager based on an analysis of financial statement filing consistency, profitability, and earnings stability in recessionary periods.
The Advisor selects the Fund’s portfolio securities from a universe of the top 400 equity securities listed in the U.S. equity market that are not in the Financial, Energy, Utility, Precious Metal, and Commodity sectors, which may be a combination of large, mid, and small capitalization companies. The Advisor then selects 200 companies based on the qualitative judgment of the portfolio manager described above. The 50-120 companies with the highest historic and forecasted EPS stability are then selected for the Fund’s portfolio.
The portfolio is generally rebalanced on a quarterly basis. However, the Advisor may rebalance the portfolio at other times due to things like corporate actions, such as mergers and acquisitions.
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