Axxion has become the latest entrant to European white-label ETF space after partnering with Shareholder Value Management on its ‘modern value’ strategy.
The Frankfurt UCITS ETF Modern Value (FRA3TF) has listed on the Deutsche Boerse and Frankfurt Stock Exchange with a total expense ratio (TER) of 0.52%.
FRA3TF tracks Shareholder Value’s Frankfurt Modern Value index which it developed with Solactive and launched last June.
The index will track an equally weighted basket of the 25 companies it expects to have the best total shareholder returns (TSR) over the next five years, based on quantitative and qualitative factors.
As with its active mandates, the firm takes the stock universe of developed markets and China and applies sustainable exclusion criteria and tradability screens which are internally verified by Shareholder Value analysts.
Though passively tracking its benchmark, FRA3TF’s underlying index can replace up to three index constituents at each quarterly rebalance based on judgements about total shareholder return prospects, giving it an active element.
The index uses quantitative metrics to single out companies with strong balance sheets, above-average return on equity, low debt levels, increasing sale or profit expectations, consistent profitability, research and development investment, share buybacks and regular dividend payments.
These factors are used to calculate a ‘safety margin’, which the firm said is a company’s current price and what it considers a company’s fair value in five years.
FRA3TF also incorporates qualitative pillars such as ‘skin in the game’ ownership, prioritising companies with family ownership or those where management has a large stake in the business.
Its index also focuses on ‘economic moats’, a term popularised by Warren Buffett for companies with a structural competitive advantage over their peers.
The ETF is always at least 51% invested in equity. Its top holdings are currently Netflix, Roche, Unilever, SAPSE and Verisign.
It is also categorised under Article 8 of the Sustainable Finance Disclosure Regulation.
Philip Promm, head of sales and marketing, board of directors at Shareholder Value, told ETF Stream: “We see a lot of appetite for ETFs in Germany and across the fund management industry. An ETF allows us to do a long-only product and develop new regions and clients.
“One special feature of our ETF’s underlying index is our fundamental stock-picking approach. There are quantitative criteria within the index selection rules that provide exposure to our top 25 stocks.”
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