New Guggenheim ETF Targets Optimized Large-Cap Diversity

Guggenheim Investments, the eighth-largest U.S. issuer of exchange-traded funds and one of the largest issuers of smart or strategic beta ETFs, is adding to its lineup of alternatively-weighted offerings Tuesday with the debut of the Guggenheim Large Cap Optimized Diversification ETF OPD.

Index, Allocations And Holdings

The Guggenheim Large Cap Optimized Diversification ETF follows the Wilshire Large Cap Optimized Diversification Index, a benchmark “designed to provide optimized diversification to the U.S. large-cap equity market,” according to Guggenheim.

OPD can hold 100 to 120 stocks and comes to market with 115 holdings with an average market capitalization of $38.4 billion. None of the new ETF's holdings garner weights in excess of 1.46 percent. OPD's top 10 holdings include Newmont Mining Corp NEM, Kinder Morgan Inc KMI, Campbell Soup Company CPB and Dow component Verizon Communications Inc. VZ.

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With the objective of delivering superior risk-adjusted returns, OPD's underlying index's “proprietary algorithm, subject to sector and stock level constraints, selects stocks that tend to have lower correlation to the cap-weighted Wilshire Large Cap Index and weights them by correlation and risk to optimize the index’s diversification. Individual stocks are only added up to the point that they contribute to diversification, resulting in an index that generally includes 100 to 120 constituents,” according to Guggenheim.

OPD's index is heavily tilted toward consumer stocks with consumer staples and discretionary names combining for nearly 44 percent of the benchmark's weight. Financial services and healthcare are the other sectors to command double-digit allocations at 14 percent and 12.5 percent, respectively.

The Smart Beta Element

As a smart beta ETF, OPD could be at the right place at the right time given swelling usage of such ETFs.

According to FTSE Russell’s first U.S. retail financial advisor market survey – Smart Beta: 2015 survey findings from U.S. financial advisors – 68 percent of financial advisors polled are using smart beta ETFs and 70 percent are using multiple strategic beta approaches.

A recent survey by Create-Research found that smart beta ETFs account for over $300 billion, or 18 percent of the U.S. ETF market, by far the largest ETF market in the world.

OPD charges 0.4 percent per year, or $40 for every $10,000 invested.

Disclosure: Todd Shriber owns shares of KMI.