Stock-price momentum drives the rules-based process of First Asset U.S. TrendLeaders Index (SID), which opened for trading today on the Toronto Stock Exchange.
The market benchmark for the exchange-traded fund is the CIBC U.S. TrendLeaders Index of large- and mid-cap stocks. The investment logic behind the strategy is the momentum-investing assumption that trends in stock prices tend to persist, at least over shorter periods.
This is a high-turnover strategy, since the index will be rebalanced monthly to create an updated portfolio of the 50 highest-scoring stocks, according to the proprietary methodology developed by CIBC World Markets. The rebalancing removes weakening or stagnating stocks, replacing them with new, higher-scoring ones.
The stock-selection model ranks securities based on the duration and longevity of certain underlying strengths in stock-price trends, and incorporates a quantitative filter for technical factors.
According to fund sponsor First Asset Investment Management Inc., there is empirical evidence that the equity securities that meet the criteria to be included in the index will continue to generate better absolute and relative returns on a more frequent basis than the market as a whole.
The ETF's management fee is 0.75%, not including expenses. Cash distributions are to be made at least quarterly. First Asset, a subsidiary of CI Financial Corp. (CIX), offers an optional distribution-investment plan. At least 90% of the ETF's foreign-currency exposure is to be hedged back to the Canadian dollar.
To qualify for inclusion in the U.S. TrendLeaders Index, a stock must be a constituent of the Solactive U.S. Large and Mid Cap Index, which is maintained by a German index provider. There are also trading-volume requirements in order for stocks to be eligible to be selected.
The architect of the TrendLeaders strategy is chartered market technician Sid Mokhtari of CIBC World Markets, whose first name matches the ETF's trading symbol.