Distillate International Fundamental Stability & Value ETF
Exchange: NYSE Arca
Expense ratio: 0.55%
CUSIP: 26922B501
Index: Distillate International Fundamental Stability & Value Index
Constituents: 100
- Financial Indebtedness
- Fundamental Stability
- Valuation
Prospectus is here.
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Distillate International Fundamental Stability & Value Index
To be eligible for inclusion in the Index, a company must meet the following requirements:
(1) have a minimum of five years of cash flow per share data available,
(2) have sufficient liquidity (e.g., a minimum average daily trading volume of US$20 million over the most recent 30-day period),
(3) have a minimum market capitalization of US$5 billion, and
(4) sufficiently low minimum-lot requirements (the “Equity Universe”).
The Equity Universe is determined annually as of each December 15 and constitutes the Equity Universe for each quarterly reconstitution of the Index until the next December 15.
The companies in the Equity Universe are then evaluated based on the following three proprietary fundamental measures (collectively, the “FSV Measures”) to identify the companies that will be included in the Index:
Each company is scored based on a proprietary measure of the volatility of its historical and projected cash flows as an indicator of fundamental stability. The bottom two-thirds (i.e., the least stable) of the companies in the Equity Universe based on this measure are excluded from the Index.
Valuation
Each company is scored based on a proprietary measure of the company’s free cash flow yield (a measure comparing a company’s normalized free cash flow to its enterprise value).
The Index is typically reconstituted quarterly from the companies in the Equity Universe after the close of trading on the 10th business day of each January, April, July, and October, based on FSV Measures as of the 5th business day of that month (the “Data Date”). The Index Provider may adjust the specific timing of reconstitutions to account for holidays and market closures in foreign markets.
At the time of each reconstitution of the Index, a company will not be removed from the Index solely for falling out of the top 100 most undervalued companies as determined by the Index methodology if it remains within the top 130 most undervalued companies. Similarly, a company will not be removed from the Index solely for having a market capitalization less than US$5 billion or average daily trading volume of less than US$20 million if the company’s market capitalization and average daily trading volume are at least 70% of such thresholds (i.e., US$3.5 billion and US$14 million, respectively).
- the Americas (North America ex-United States & South America)
- Europe
- the Middle East & Africa
- Japan
- China/Hong Kong
- Asia & Australia ex-Japan/China/Hong Kong
The Index excludes U.S. companies (i.e., those with their headquarters in the United States). At the time of each reconstitution of the Index, the Index limits the weighting of each foregoing region to a maximum of 150% of the weight of the total market capitalization of large- and mid-capitalization stocks in such region relative to the total global ex-U.S. market capitalization of large- and mid-capitalization stocks.
The Index Provider determines each country’s eligibility for inclusion in the Index based on factors including the liquidity of the country’s stock markets, accessibility to foreign investors, operational complexity, price transparency, and capital controls, as well as the effect a country’s inclusion in the Index would have on the Index’s investibility and the cost of trying to replicate the Index’s constituents. The Index Provider may include a depositary receipt in lieu of a foreign ordinary share, if such depositary receipt meets the Index eligibility requirements described above. In addition, the Index may include companies organized in emerging market nations or whose shares trade primarily in emerging market nations.
Companies in the real estate development and real estate investment trust industries, as defined by the FactSet Revere Business Industry Classification Systems (“RBICS”), are excluded from the Index.
At the time of each reconstitution of the Index, each Index constituent is initially weighted based on the sum of two-thirds of its equal weighting weight (i.e., 2/3 of 1%) and one-third of its proportion of the Index’s total normalized cash flow, using data as of the Data Date. For example, for an Index constituent with 4% of the total normalized free cash flow of all 100 Index constituents, its weighting would be two-thirds of 1% plus one-third of 4%, which equals 2%. The new weight of each company may be adjusted upward or downward by the Index methodology to minimize the turnover rate of positions that would remain in the Index with weights that would otherwise change by less than 0.25%.
Although the Index methodology seeks to select companies that demonstrate fundamental stability, the value of such companies (and consequently the value of the Index and of the Fund) may still be subject to volatility over short or long periods of time.
As of December 7, 2020, the Index had significant exposure to companies in China/Hong Kong and Europe. The Index’s exposure may change significantly with each reconstitution or based on market movements in between reconstitutions.
