Another Lattice ETF Targets Global Small-Caps

Lattice Strategies is rolling out ETFs in full swing. Soon after launching Lattice U.S. Equity Strategy ETF (ROUS), Lattice Emerging Markets Strategy ETF (ROAM) and Lattice Developed Markets (ex-US) Strategy ETF (RODM), the issuer has rolled out Lattice Global Small Cap Strategy ETF . Let’s take a look at ROGS in detail (read: Lattice Debuts ETF Industry with Three Products)

ROGS in Focus

ROGS looks to track the investment results of the Lattice Risk-Optimized Global Small Cap Strategy Index to provide exposure to global small-cap equities. The index seeks to improve returns by focusing on several risks including valuation, momentum and quality characteristics.

Various optimization constraints are considered in stock selection so as to maintain diversification and risk objectives of the strategy. The constituents of the index are risk and factor adjustment twice annually and screening for liquidity.

Sector wise, Financials dominates the fund with 24.3% allocations, closely followed by Industrials (18.7%), Consumer Discretionary (17.1%) and Information Technology (13.2%). Geographically, the U.S. takes about 44% of the total basket with Japan taking the second spot holding about 12%. Rest of the regions accounts for single-digit holdings (read: 3 Top Ranked Hedged Japan ETFs in Focus).  

The company-specific risks should be minimal in the fund as the index houses as many as 455 stocks. The fund charges 60 bps in fee. As of March 23, 2015, the dividend yield of the fund was 3.93% which looks pretty decent at the current level.

How Could it Fit in a Portfolio?

The ETF could be well suited for investors seeking higher returns from global small caps with low risk. Small caps are considered the measure of domestic economy. In a growing economy, these pint-sized securities perform the best as these generate most of their revenues from the domestic market. These are less ruffled by global economic concerns (read: Top-Ranked Small Cap ETFs for a Growing Economy).

The newly launched ETF’s heavy exposure in the U.S. and Japan will enable it to ride out steady economic growth, especially in the former. Japan is presently pursuing an ultra-easy monetary policy while the Fed in the U.S. also looks to be supportive to economy by keeping the rates at rock-bottom level for as long as the economy needs it.

Other underlying nations including China, Australia and South Korea have also resorted to the rate cut route. This will lead to stepped-up economic activities, and rising business and consumer confidence in those economies which in turn will benefit small-cap companies. The product should be a good engine for dividend yield too.

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