SPA To Launch ETFs Weighted By Quality

SPA ETF Inc. is launching a set of fundamental index exchange traded funds in the U.S. after launching its ETFs in London.

Even though the U.S. market is more mature, most ETFs track cap-weighted or equal-weighted indexes, says Edward Feliciano, who heads the company's New York operation.

Feliciano will be executive director. He says that even though the market in the U.S. has a lot of ETFs, most of them track cap-weighted or equal-weighted indexes.

Fundamental Focus

SPA's ETFs, which are traded on the London Stock Exchange, track fundamental indexes.

The ETFs underlying stocks are picked by Market Grader, a data provider that scores stocks according to a point 19ystem based on factors such as earnings growth, cash flow and fair value.

Out of the thousands of stocks evaluated, the system then picks a basket that becomes the ETF.

The ETFs in the U.K. started trading last month.

Feliciano says the markets will move toward fundamental indexing. SPA's ETFs are designed to find better-performing stocks and generate absolute returns.

"If you can provide a product that can provide some sort of alpha, you're in a good place," he said.

That said, other firms have unveiled fundamental index ETFs in the U.S. market.

Among them are PowerShares FTSE RAFI U.S. 1000 Portfolio PRF, WisdomTree Total Dividend DTD and WisdomTree Total Earnings EXT. PowerShares is one of the larger fundamental index ETFs at $1.2 billion, while the two WisdomTree ETFs have $100 million and $19 million, respectively.

The PowerShares ETF focuses on the highest-ranking companies in the FTSE-RAFI, while WisdomTree Total Dividend tracks stocks in the firm's dividend index. WisdomTree Total Earnings tracks stocks in the WisdomTree Total Earnings Index.

Larger U.S. Market

Feliciano says that while fundamental indexing has found greater acceptance in Europe than in the U.S., the U.S. has a larger investor market. Technical barriers in Europe hobble the rollout of new ETFs, he says.

SPA offers six ETFs with varying numbers of stocks in them or covering different asset classes.

They are the SPA ETF Market Grader 40, SPA ETF Market Grader 100, SPA ETF Market Grader 200, and SPA ETF Market Grader funds for small-cap, midcap and large-cap stocks.

SPA is supported by London & Capital, a British fund manager and investment adviser. Although the ETFs trade in London, the stocks in them are from the U.S. markets.

Feliciano says he can't say much about the ETFs planned for the U.S. since the firm is in a quiet period pending approval by the Securities and Exchange Commission.