Index funds exist so that investors can see exactly what they own. A new one in London tracks an index of 30 stocks, picked by a broker's research department, and will tell you what those stocks are 20 days after the fact.
Quest is the London-based research arm of Canaccord Genuity. It has long sold institutional clients a way of judging companies by their cashflow return on assets rather than the usual return on equity or return on capital. It has now taken that method, handed it to Solactive, and put the result in an ETF on Waystone's Irish platform.
The portfolio is 30 “high-conviction” global equities, chosen for cash generation, balance sheet strength, return predictability and working capital efficiency. “High conviction” is not a phrase one usually meets in an index fund.
The holdings are disclosed with a 20-day lag. That is the most revealing detail in the whole launch. A broker's research has value because clients see it before everyone else does. Publish the index in real time and the research is free. Publish it three weeks later and it is merely history. Somebody has thought carefully about which side of that line the subscription business sits on.
The result does not look much like a benchmark. The strategy reports an active share of 97% against the MSCI World and no exposure to the Magnificent Seven. An active share that high means nearly everything it owns is something the world index owns very little of, or none at all. It rebalances quarterly and charges 0.55%.
So this is an index fund that tries to be different from the market, built on research that is sold for a living, disclosed late enough to keep the research worth buying. As a business model it is quietly brilliant. As an index, it is a stock picker with a methodology document.
The robots are coming, but they are smaller than you might think. The MSCI China All Shares IMI Robotics Select Index has 35 constituents, and the largest of them is worth about $1.91bn. The median is about $813m. The whole index adds up to roughly $31bn.
The valuation tells the rest of the story. MSCI puts the index on a trailing price to earnings ratio of 159.8 and a forward ratio of 37.9. Divide one by the other and you get about 4.2: the market expects earnings to roughly quadruple. The index has also reshuffled itself vigorously: index turnover over the last 12 months was 50.65%, so about half of what was in it a year earlier is no longer there. Its worst historical drawdown was 72.81%.
The largest weights include a maker of harmonic reducers for robot joints, a lidar company, Horizon Robotics and the humanoid builder UBTech. HSBC charges 0.50% for full physical replication, which is a fair price for owning a sector that is still deciding which of its companies will exist.
VanEck has run Wealth Builder for some time as a set of model portfolios for financial advisers. The disclosures for those models state, firmly, that the model “is not a mutual fund or other type of security” and that VanEck “does not place trade orders” for anyone. The ETF version is and does.
It is a fund of funds. It buys ETPs, both VanEck's own and other managers', across equities, bonds and real assets, with a menu that runs to collateralised loan obligations, master limited partnerships, business development companies, gold bullion and digital assets. The commodity and crypto exposure sits in a wholly owned Cayman Islands subsidiary, capped at 25% of assets at each quarter-end. In bad markets the fund may retreat into cash, short-term bonds or gold, which is a very VanEck idea of safety.
The fee table is where it gets elegant. The management fee is 0.15% and the underlying funds cost a further 0.18%, for 0.33% in total. VanEck then waives its own fee by whatever it collects from its own funds inside the portfolio, estimated at 0.07%, leaving 0.26%. That waiver is a promise not to charge you twice for the same product, and it also tells you, to two decimal places, how much VanEck earns from its own products inside the fund.
This fund is leaving. Morgan Stanley Investment Management is liquidating it, and the shares have already stopped trading. Its index picked from the 1,000 largest US companies, looking for leadership in having “a diverse workforce and an equal and inclusive work culture”, or significant improvement towards one.
The press release uses the full name. The fund's own product page, in the short notice announcing the liquidation, calls it the “Calvert Diversity and Equity ETF”. This one has left with its name shortened, and the word to go was ‘Inclusion’, which is what its index was built to measure.
The rest of the page still makes the case for the strategy, offering exposure to companies “successfully managing” DEI issues and seeking “positive change”. During the wind-down, the notice adds, the fund “may no longer be pursuing its investment objective”. Fund closures are usually quiet affairs. This one has managed to be quiet and slightly abridged at the same time.
I recently noted Fidelity building buffer funds on top of its Research Enhanced equity portfolios. AllianceBernstein's version is called Research Advanced, and the naming committees of large asset managers clearly share a thesaurus.
The method is sensible to the point of modesty. AB takes the overweight positions from its own value, core and growth strategies, blends them with a quantitative model that scores stocks on quality, value and momentum, and then optimises the lot. Individual weights are kept within set ranges of their S&P 500 weights, with limits on sector and factor bets. Some holdings, the prospectus admits, are there for their contribution to diversification “rather than for their standalone return potential”. A European sibling, AB Global Research Advanced, already trades in Milan.
It is run by a team that “relies heavily” on AB's large internal research staff, and the prospectus notes that no one person is principally responsible for the portfolio. There is no star manager, no 20-day lag and no Cayman subsidiary. The management fee is 0.25%. Next to a broker's delayed index and a fund of everything, a research department's best ideas, kept close to the S&P 500 and sold cheaply, look less like a product and more like good manners.