New provider – Buybacks


Newcomer LeaderShares lists alpha beta ETF

LeaderShares – an ETF newcomer about which we could find little information – is teaming up with Two Roads Trust – a Gemini Funds white-labelling initiative – to list a smart beta ETF that’s actually smart. The LeaderShares AlphaFactor US Core Equity ETF (LSAF) will track an index produced in-house by LeaderShares called the “AlphaFactor US Core Equity Index”.

LSAF will use multi-factor ranking process to parse through the largest 1,000 US stocks. It then picks stocks based on net share count reduction (buybacks), free cash flow growth, and debt/asset ratios. The final selection of stocks is based on market characteristics including, but not limited to, liquidity and market capitalization. The fund will be equally weighted and rebalance quarterly.

As of June 29, 2018, the Index was comprised of one hundred issues, the prospectus says.

Analysis – Great fund. 

This is a good fund.

As far as putting an ETF together goes, investors and ETF providers cannot go wrong with free cash flow. The only reason to start a business is to grow cash. Success in business is about creating free cash flow which can be either reinvested or distributed. For this reason it’s every CFO’s favourite number.

Buybacks are great for long-term shareholders. While they remain ethically controversial (Ben Graham thought they could incentivize management to artificially lower companies share prices, so that they could repurchase them more easily), they are a known way to boost stock prices.

Low debt is also a good stock picking rule. After all, outside financials, who wants debts?

If we had a criticism of LSAF it would be that it’s very similar to TTAC, the TrimTabs All Cap US Free-Cash-Flow ETF, which uses the exact same metrics. (David pointed this out to me because it’s his favourite ETF). There are important differences, however. LSAF is passive whereas TTAC is active. LSAF also would appear to be more FCF focused, whereas TTAC tilts towards buybacks.

Regardless, buybacks and quality are a winning combination. We expect this ETF to outperform the Vanguard Total Stock Market Fund.


Desjardins brings in the rest of its low CO2 ETFs

Quebecois credit union Desjardin is rounding out its ESG fund offering.

  • Desjardins RI Canada – Low CO2 Index ETF DRFC CN (DRMC)
  • Desjardins RI USA – Low CO2 Index ETF (DRMU)
  • Desjardins RI USA Multifactor – Low CO2 ETF (DRFU)
  • Desjardins RI Canada Multifactor – Low CO2 ETF (DRFC)
  • Desjardins RI Emerging Markets Multifactor – Low CO2 ETF (DRFE)
  • Desjardins RI Global Multifactor – Fossil Fuel Reserves Free ETF (DRFG)

All the funds are fairly biscuit tin and track either plain vanilla or multifactor indexes that have been screened to lower the average carbon footprint of the fund. Each fund tracks an index built by Ed-Hec’s Scientific Beta arm. Website here.