FAQs

SmartETFs are actively managed, which means rather than having our holdings dictated by an index, which may or may not be intelligently constructed or subject to intelligent oversight, we actually research and understand the companies we invest in.

We begin by forming a universe of investable companies that fit the fund’s objective or theme. From this universe we eliminate any companies that are too small or illiquid. We then screen each stock in the universe looking, in particular, for quality. We prefer companies that consistently produce above average return on invested capital. This criterion doesn’t always apply; often rapidly growing companies are reinvesting cash and don’t necessarily score well during the ramp up phase. But all things considered, we prefer companies that consistently produce above average returns. Quality also means low debt levels and good balance sheets. Companies under consideration are then subject to a thorough examination, commonly referred to as fundamental analysis. This involves a deep dive into the financial history and an analysis on a variety of key metrics. The end result of the process is a multi-page booklet on each company we’re analyzing. These booklets are largely identical in layout which allows our analysts and fund managers to easily compare companies and immediately find pertinent data.

But stock selection is only half of the exercise; care needs to be taken in portfolio construction. We build our portfolios in an intelligent manner as well. Rather than weight our stocks by market cap, we weight our holdings equally. We also hold a set number of positions in each of our portfolios, typically 30 or 35 holdings. Equal weights help manage stock specific risk. Note that the positions are never exactly equal…as stocks move up and down relative to each other the weightings change. We do re-balance as circumstances dictate, we don’t re-balance slavishly as we seek to reduce transaction costs and keep the turnover low. In some markets we’re restricted to round lots. All of this is to say that the portfolio will never be perfectly equally balanced. But if you look at the holdings in our ETFs you’ll see that the holdings are roughly equal.