Investors have always been fascinated by the investing prowess of market legends such as Benjamin Graham, Peter Lynch and Warren Buffet et al for decades. Their success in picking value areas of the stock market by sticking to fundamentals is no small achievement and neither are they easy to replicate.
However, in recent years a number of so-called guru ETFs has popped up to make life easier for the uninitiated. While most of the exchange traded funds have managed to meet investor expectations, none of them offers investors direct access to the investing methodologies applied by the legends of Wall Street. The newly-launched Validea Market Legends ETF (VALX) seeks to fill that void.
Validea Capital Management, the Connecticut-based investment advisor promoted by veteran fund manager John Reese, is the sponsor of VALX. The actively-managed fund follows a unique methodology in that it analyzes 10 different “guru” models that include, among other factors – value, growth, momentum and income. Next, it chooses 10 stocks from each investment strategy to constitute the underlying 100-stock portfolio, indicating the fund is very well diversified.
Every stock in the portfolio is given a score based on the 17 models that Validea has developed based on the investment philosophies of Graham, Buffett, Lynch, Neff and many others.
The performance of every stock is evaluated every 28 days and those who score less are sold and substituted with higher scoring names. That equates to about 10 percent portfolio churn-rate every month.
The disciplined rebalancing approach in stock selection removes biases and emotions that often plague both professional and individual investors. VALX is more of a midcap value strategy although the models are not constrained by market caps and styles. The active management-style gives fund managers the flexibility to trigger stop-losses for individual holdings when the situation warrants.
The new fund is likely to face competition from Global X Guru Index ETF (GURU) and the Direxion iBillionaire Index ETF (IBLN), both of which follow the portfolios of legendary investors based on their 13F filings.
VALX has an annual expense ratio of 0.79 percent.
Disclosure: No holdingsContact Ulli