Special Report Q3 2018
WBI has long been a proponent of quantitative factor security selection and a leader in active risk management. We specialize in high yielding dividend stock investing with a strong value bias. The goal of our Power Factor? security selection is to find the highest yielding dividend paying stocks with the highest quality fundamentals and growth trends to generate consistent capital growth and good relative performance.
Every quarter, S&P Dow Jones Indices publishes a series of index dashboard reports. One of the dashboards we find most interesting is the S&P 500 Factor Indices Report. We reviewed the latest report showing Q3 2018 and Trailing 12 month total return and compared several of the WBI ETFs against the S&P 500 Factor Indices.
We believe this comparison illustrates that WBI’s Power Factor security selection approach can lead to good consistent performance even when our high dividend and value bias should be causing underperformance.
Q3 Factor Performance Summary
For the third quarter, the S&P 500 posted a return of 7.71% which is highlighted in red on the chart below. We were not surprised to see the Momentum and Growth factor indices continue their outperformance trend to take two of the top three spots. The S&P 500 Quality factor index, with a 37% weighting to the Info Tech sector, made a late charge in the quarter to take the top spot. The worst S&P factor performers were Low Volatility High Dividend and High Dividend.
Given this trend, we were gratified at the results of our analysis below, showing the WBI Bull|Bear Value 1000 ETF, Quality 1000 ETF, and Rising Income 1000 ETF outperforming the S&P 500 and the comparable S&P Factor Indices. Higher yielding dividend and value factor indices were out of favor for the quarter posting the weakest returns. WBI Bull|Bear Yield 1000 ETF outperformed the two S&P dividend factor indices by a nice margin. The WBI Power Factor High Dividend ETF underperformed the large cap factor indices due to its all-cap focus with SMID dividend stocks dragging on its performance in the quarter.
The performance data quoted represents past performance and is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For most recent month-end performance, please visit wbietfs.com.
Trailing 12-Month Factor Performance Summary
Similarly, our analysis of the S&P 500 Factor Indices’ trailing 12-month performance highlights WBI’s Power Factor? security selection, which helped our ETFs below deliver attractive performance over the 1-year period ending 9/30/18. Once again, the traditional non-dividend paying factor indices featuring momentum and growth stocks posted the best performance. While the S&P 500 Index posted a 17.91% gain, most of the return was driven by the tech-heavy Momentum (39% Tech) and Growth (42% Tech) factor indices. WBI Bull|Bear Rising Income 1000 posted WBI’s best performance with a 16.90% return, significantly outperforming dividend and value factor indices.
WBI’s dividend-focused ETFs in this analysis outperformed the S&P 500 value and dividend factor indices, which once again posted the weakest performance of the S&P factor group. WBI Bull|Bear Quality 1000 ETF, which is also dividend focused, underperformed the tech-heavy S&P 500 Quality Index.
Sector Weighting
Sector weighting also plays a big role in determining performance. For Q3 2018, the two top performing S&P 500 sectors were Info Tech and Health Care. The two sectors combined carried 56% of the S&P 500’s quarterly performance (7.71%).
By comparison, WBI Bull|Bear Rising Income 1000 ETF’s return contribution for Q3 by sector is highlighted in the charts below:
IMPORTANT INFORMATION
For standardized performance and other important information, click here.
An investment in the Funds is subject to risk, including the possible loss of principal. The Funds may invest in foreign and emerging market securities which carry additional risks than investing in the United States such as currency fluctuation, economic or financial instability, and lack of timely or reliable financial information or unfavorable political or legal developments. The Funds are subject to model risk, the investment process includes the use of proprietary models and analysis which rely on third party data and if inaccurate could adversely affect the Fund performance. The Funds may invest in REITs and will be subject to the risks associated with the direct ownership of real estate and annual compliance with tax files applicable to REITs. Risks commonly associated with the direct ownership of real estate include fluctuations in the value of underlying properties, defaults by borrowers or tenants, changes in interest rates and risk related to general or local economic conditions.
The Funds may invest in Exchange Traded Funds (ETFs), mutual funds and Exchange Traded Notes (ETNs) which will subject the Funds to additional expenses of each ETF, mutual fund or ETN and risk of owning the underlying securities held by each. Options on securities may be subject to greater fluctuations in value than an investment in the underlying securities. Master Limited Partnership risk entails risks such as fluctuations in energy prices, decrease in supply of or demand for energy commodities.
In addition, the Funds are subject to market risk, management risk, dividend risk, growth risk, value risk, debt security risk, high-yield security risk, small and medium company risk, portfolio turnover risk, securities business risk, mortgage-backed securities risk, and trading price risk. New ETFs may also be subject to “new fund” risk in that it has no operating history and that its strategy may not be viable over time.
In addition, there are risks specific to WBIY. The Fund invests in high yielding stocks, which are often speculative, high risk investments. These companies can be paying out more than they can support and may reduce their dividends or stop paying dividends at any time, which could have a material adverse effect on the stock price of these companies and the Fund’s performance. The Fund is not actively managed and the Sub-Advisor does not attempt to take defensive positions in declining markets. Unlike many investment companies, the Fund does not utilize an investing strategy that seeks returns in excess of its Underlying Index.
Shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Owners of the shares may acquire those shares from the Fund and tender those shares for redemption to the Fund in creation units only. Market returns are based upon the midpoint of the bid-ask spread at 4:00pm EST (when NAV is normally determined for most ETFs). Market price returns do not represent the returns you would receive if you traded shares at other times.
Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. For a prospectus and summary prospectus containing this and other information about the Fund please visit our website at www.wbishares.com or call 1-800-772-5810. Read the prospectus carefully before investing.
Foreside Fund Services, LLC, Distributor
A factor can be thought of as any characteristic relating a group of securities that is important in explaining their return and risk. A goal of “factor investing” is to offset potential risks by targeting broad, persistent, and long recognized drivers of returns. Common factors include elements such as style (growth v. value) and size (large cap v. small cap), however WBI has developed its own view of which factors are most powerful in driving performance and calls these factors its “Power Factors.” References to any particular factor is not indicative of whether that factor is or will continue to be used as a factor in WBI’s securities selection process. Factor Definitions: Momentum - the idea that securities which have outperformed in the past tend to exhibit strong returns going forward. Quality - low debt, stable earnings, consistent asset growth, strong corporate governance. Growth – revenues and earnings expected to increase at a faster rate than the average company. A multi-factor investment is diversified across a number of factors and may help to reduce risk that any one factor may not be as predictive as expected. Individual factors have tended to perform well at different parts of the economic cycle and may be less correlated with equity market moves. Past performance of individual or multi factors does not guarantee future performance. S&P makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any S&P data contained herein. This report is not approved, endorsed, reviewed, or produced by S&P. None of the S&P data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.
You are not permitted to publish, transmit, or otherwise reproduce this information, in whole or in part, in any format to any third party without the express written consent of WBI Investments, Inc.
Index Definitions:
S&P 500 Low Volatility is designed to measure the performance of the 100 stocks in the S&P 500 with the lowest volatility, measured on a 1-year trailing basis. The weighting of each stock is in inverse proportion to its volatility. S&P 500 Minimum Volatility uses an optimization process to find the portfolio of S&P 500 stocks, and weights, that would have demonstrated the lowest volatility on a historical basis, subject to constraints maintaining limiting sector and factor exposures. As of Sept 28, 2018 the index comprised 120 constituents. S&P 500 Low Volatility High Dividend measures the performance of the 50 least-volatile high dividend-yielding stocks in the S&P 500. Each component is weighted proportionally to its dividend yield. S&P 500 High Dividend is constructed from the 80 constituents of the S&P 500 with the highest indicated dividend yield. The index is equal weighted. S&P 500 Quality is designed to track the 100 stocks in the S&P 500 with the highest quality score, which is calculated based on return on equity, accruals ratio and financial leverage ratio. The weighting is proportional to both the quality score, and the market capitalization, of each component. S&P 500 Enhanced Value is designed to measure the performance of the 100 stocks in the S&P 500 with the highest average book value-to-price, earnings-to-price, and sales-to-price. The weighting is proportional to both the value score and the market capitalization of each component. S&P 500 Momentum comprises the top 100 stocks in the S&P 500? based on 12M prior risk-adjusted performance (excluding the most recent month at the rebalance). The weighting is inversely proportional to the trailing volatility of each component. S&P 500 QVM Multi-Factor comprises the 100 stocks with the highest combined quality, value and momentum scores, weighted in proportion to both market capitalization and multifactor score. S&P 500 High Momentum Value is designed to measure the performance of the 100 stocks with the highest momentum selected from the 200 stocks in the S&P 500 with the highest value score, subject to turnover constraints. The weighting is proportional to the value score of each constituent. S&P 500 Growth comprises S&P 500 stocks with above-average combinations of the ratio of earnings growth to price, sales growth, and momentum. The weighting is by capitalization, although the weight of some stocks is divided between the Value and Growth indices. As of Sept 28, 2018 the index comprised 297 constituents. S&P 500 Value comprises S&P 500 stocks with above-average combinations of book value-to-price, earnings-to-price, and sales-to-price. The weighting is by capitalization, although the weight of some stocks is divided between the Value and Growth indices. As of Sept 28, 2018 the index comprised 383 constituents. S&P 500 Pure Growth comprises those S&P 500 stocks with 100% of their market cap in the S&P 500 Growth index and a growth score in the highest quartile. The weighting is proportional to the growth score. As of Sept 28, 2018 the index comprised 118 constituents. S&P 500 Pure Value comprises S&P 500 stocks with 100% of their market cap in the S&P 500 Value index and a value score in the highest quartile. The weighting is proportional to the value score. As of Sept 28, 2018 the index comprised 109 constituents. S&P 500 Buyback is designed to measure the performance of the top 100 stocks in the S&P 500 by buyback ratio. The components are equally weighted. S&P 500 Equal Weight comprises all 500 stocks in the S&P 500, equally weighted. S&P 500 Dividend Aristocrats measures the performance S&P 500 companies that have increased dividends every year for the last 25 consecutive years. The Index is equally weighted at each rebalance. As of Sept 28, 2018 the index comprised 53 constituents. S&P 500 High Beta is designed to measure the performance of the top 100 stocks in the S&P 500 by sensitivity to market returns. The weighting is in proportional to the beta coefficient of each constituent.
SOURCES
1 "S&P 500 Factor Indices Q3 Index Dashboard Report" S&P Dow Jones Indices LLC. 28 Sept. 2018