Investment Product and Service Launches

Vanguard makes changes to active equity funds; Global X Funds presents TargetIncome ETFs; Northern Trust launches multi-dimensional fund; and more.

Vanguard has announced changes to two actively managed equity funds. The Vanguard Precious Metals and Mining Fund (VGPMX) will be renamed to Vanguard Global Capital Cycles Fund as part of a restructuring intended to broaden the fund’s mandate and diversify its portfolio. Wellington Management Company LLP will manage the fund effective immediately.

Additionally, Baillie Gifford Overseas Ltd. has been added to the advisory team of the Vanguard Emerging Markets Select Stock Fund (VMMSX). M&G Investment Management Limited will no longer serve in an advisory capacity for either fund.

The restructured Global Capital Cycles Fund is intended for investors with a long-term time horizon who seek a complement to their core global equity allocation that exhibits lower correlations to the broad equity markets. The new strategy and name are expected to become effective in late September 2018.

In managing the fund, Wellington Management will adhere to a capital cycles strategy as its primary investment approach, seeking to capture opportunities in commodity-oriented industries, such as the materials and natural resource sectors, which follow cyclical patterns. The strategy will also focus on companies that own irreplaceable or scarce infrastructure assets primarily in telecommunications and utilities. While the fund will maintain meaningful exposure to precious metals and mining stocks, the capital cycles strategy encompasses a broader opportunity set from which to identify return potential.

Wellington Management Senior Managing Director Keith White will serve as portfolio manager. White will be supported by the firm’s 16-member natural resources and utilities team, as well as the firm’s 40 global industry analysts. 

The change in the fund’s investment advisory arrangement is expected to increase the fund’s expense ratio to 0.37% from 0.36%.


First Trust Creates Factor-Based Fund

First Trust has launched a new exchange-traded fund (ETF), the First Trust Lunt U.S. Factor Rotation ETF (Cboe BZX: FCTR).

The fund seeks investment results that correspond generally to the price and yield (before the fund’s fees and expenses) of an equity index called the Lunt Capital Large Cap Factor Rotation Index. The index is designed to provide exposure to U.S. large cap equities, rotating among select factors when they come into favor using the propriety risk-adjusted relative strength methodology from Lunt Capital Management, Inc. (Lunt Capital). The index rotates among eight sub-indices, each of which exhibits the characteristics of the high and low side of four factors. 

Factor-based investing is a strategy used to choose securities based on those factors which are associated with historically higher returns. “In recent years, the investment industry has highlighted the value of single and multi-factor investment solutions. The fund embraces a multi-factor approach with the important innovation of applying factor rotation to momentum, quality, value, and volatility,” says John Lunt, president, Lunt Capital. These strategies attempt to offer exposure to securities which target a desired deviation from the risk-return profile relative to the broader market. Although single-factor investing offers the ability to hone in on a desirable characteristic of a stock, a multi-factor approach may provide the added benefit of diversification and provide a solution that seeks to enhance returns over time.


Global X Funds Presents TargetIncome ETFs

Global X Funds has launched the “Global X TargetIncome 5 ETF” [exchange-traded fund] (CBOE: TFIV), and the “Global X TargetIncome Plus 2 ETF” (CBOE: TFLT). TFIV seeks to achieve a 5% yield, net of fees, while TFLT seeks to achieve the yield on the current 10-Year US Treasury Note, plus 2%, with both funds expected to pay distributions on a monthly basis.

In a decades long shift from defined benefit (DB) plans, which provide investors with predictable income streams in retirement, to defined contribution (DC) plans, individual investors have assumed much of the risk relating to their retirements. With an outcome-based approach, Global X Funds says TFIV and TFLT seek to help investors achieve specific income levels from their retirement assets.

TFIV and TFLT are track indexes developed by Wilshire Associates that allocate across 11 ETFs representing different income-paying asset classes. The ETFs seek to attain their targeted income levels while simultaneously optimizing their exposures to mitigate risk. 

“By combining Wilshire’s robust multi-asset analytics and deep institutional allocation expertise, we’ve structured indexes that aim to target specific yield objectives while mitigating risks,” says Jason Schwarz, president of Wilshire Analytics and Wilshire Funds Management.  “We’re proud to bring these indexes to market and very pleased to work with Global X, which has established itself as a leader in income ETFs,” Schwarz added.  

“Despite a recent spate of rate hikes, investors continue to face a low yielding market,” says Jay Jacobs, head of research and strategy at Global X. “As the Baby Boomer generation increasingly transitions into retirement, we believe that TFIV and TFLT can offer potential solutions to investors looking to achieve specific income goals with their portfolios.”

Wilshire Associates Add Target Income Indices

Wilshire Associates Incorporated announced two new target income indices, the Wilshire TargetIncome 5% Plus Index and Wilshire TargetIncome 10-Year Treasury 2% Plus Index. The indices have been licensed to New York-based exchange-traded fund (ETF) provider Global X funds as the underlying benchmarks for the Global X TargetIncome 5 ETF and Global X TargetIncome Plus 2 ETF, respectively—both of which began trading on July 31.

The new indices intend to yield an income target that combines high diversification with the lowest risk necessary to achieve targets, says the firm. The offering leverages intellectual capital from two Wilshire business units: Wilshire Analytics and Wilshire Fund Management.

“While many high yield products exist today to service the growing demand for outcome-oriented investing, particularly as Baby Boomers look to retirement, few if any solutions address the challenge of volatility, much less risk at a basic level,” says Jason Schwarz, president of Wilshire Analytics and Wilshire Funds Management. “By combining Wilshire’s robust multi-asset analytics and deep institutional allocation expertise, we’ve structured indices that leverage an optimization approach designed to achieve a target yield and minimize risk through broad asset class exposure across a range of income-producing vehicles,” says Schwarz.

According to the firm, Wilshire’s optimization approach does not assume a frictionless environment, and looks to achieve its targets as closely to the optimal outcome without imposing undue turnover and transaction costs.


Northern Trust Launches Multi-Dimensional Fund

Northern Trust Asset Management has implemented the Northern Engage360 Fund (NENGX).

According to the firm, the fund combines a rigorous investment process with a unique approach to assessing and promoting diversity by expanding the lenses through which diversity is viewed. The fund’s multi-dimensional methodology aims to look beyond the historical one-dimensional firm ownership criteria by employing a proprietary, quantitative framework to capture metrics on leadership, investment teams, community engagement and corporate spending. Using a multi-manager approach, the fund allocates to sub-advisers based on a variety of investment factors from a universe of asset managers screened on a comprehensive diversity rating.

Benchmarked to the MSCI All-Country World Index, including both developed and emerging market opportunities, the Northern Engage360 Fund is a global equity portfolio. The fund is currently constructed with five sub-advisers who offer sources of potential alpha and investment characteristics, along with diversity and engagement metrics.