Xtrackers is seeking shareholder approval for a wholesale overhaul of one of its smallest US equity ETFs, replacing a minimum-volatility strategy with exposure to American small- and mid-cap companies.
The Xtrackers MSCI USA Minimum Volatility UCITS ETF currently tracks an MSCI index of large- and mid-cap US companies selected and weighted to reduce volatility. Under proposals announced by its parent company DWS, the fund would instead track the S&P 1000 Index, which combines the S&P MidCap 400 and S&P SmallCap 600 and contains around 1,000 companies. It would be renamed the Xtrackers S&P 1000 UCITS ETF.
The change represents a marked repositioning of the fund, moving it from a defensive factor strategy focused predominantly on large and mid sized companies to broad exposure to the US market below the S&P 500. It would remain passively managed using physical replication, while its 0.20% annual fee would be unchanged. Shareholders will vote on the proposal at an extraordinary general meeting on 2 November and, if approved, the changes are expected to take effect around 16 November.
Our view
David Batchelor, senior analyst at QuotedData, said: “The most striking part of this announcement is not really the change of index, but the size of the fund being changed. After almost ten years, the ETF has less than $5m of assets, and DWS has decided that a complete change of strategy offers a better prospect than continuing with the existing mandate.
“That chimes with a point Andrew McHattie made on the QuotedData ETF Show this morning about the rapidly expanding active ETF market. He argued that too many funds are being launched at very small scale and that managers need to commit meaningful seed capital if they want new ETFs to establish themselves. This particular fund is passive, but the underlying problem is the same: simply getting an ETF onto the market does not guarantee that it will reach viable scale. As the number of European ETFs continues to grow, we could see more providers choosing to repurpose subscale funds rather than simply leaving them to languish or closing them altogether.”
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