A New ETF To Refresh The Value Factor

Investors willing to bet the much-maligned value factor is poised to rebound can do so with a new, unique exchange traded fund.

The Acquirers Fund ZIG, a long/short domestic equity strategy, debuted Wednesday.

What To Know

Los Angeles-based Acquirers Funds, a deep value manager run by Tobias Carlisle, is the firm behind ZIG. The objective of the new ETF is to hold long positions in companies that are deeply undervalued and could be targets for acquirers or activist investors while shorting richly valued and financially distressed companies.

“ZIG is a 130/30 long/short deep-value strategy that is designed to track, before fees and expenses, the performance of The Acquirer’s Index,” according to Acquirers Funds.

“For both long and short positions, a stock must be listed in the U.S. and have a market cap in the largest 25 percent of all companies by market cap. From that universe of equities, ZIG’s rules-based index will hold the 30 most deeply undervalued, fundamentally strong stocks in the 'long' portion of its portfolio, while its short portfolio will consist of the 30 stocks deemed to be most overvalued, and fundamentally weak.”

Why It's Important

Traditional value metrics have badly lagged growth counterparts and the broader market for years. Over the past three years, the S&P 500 Value Index is up 33.2 percent, trailing the S&P 500 by more than 1,200 basis points and the S&P 500 Growth Index by 2,300 basis points. Many traditional value funds simply look at price-to-earnings ratios and book value in an effort to identify value stocks.

Long/short strategies that have previously emphasized the value universe have their own set of flaws, including high fees, not enough concentration to generate strong performance and diluted portfolios. ZIG aims to bring investors a better deep value approach.

“An important part of this process is a forensic-accounting diligence of the financial statements, particularly the notes and management’s discussion and analysis, to find information that may impact investment decisions,” said Carlisle. “We find most of our short positions revealed here. That type of thinking and research is what we’ve looked to build into ZIG, so investors of all types and sizes can now add the same approach to their portfolios via a liquid, low-cost ETF.”

What's Next

Not all value stocks are alike, which is a theme ZIG seizes upon. Deep value stocks are usually significantly cheaper than traditional value fare and those deep value names are often backed by strong balance sheets.

ZIG charges 0.94 percent per year, or $94 on a $10,000 investment. That's significantly cheaper than the fees on rival funds in the broader Morningstar universe of long/short value strategies.

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