ALPS Equal Sector Factor Series ALPS SECTOR LOW VOLATILITY ETF

Transcription

1 ALPS Equal Sector Factor Series ALPS SECTOR LOW VOLATILITY ETF

2 Why Low Volatility? Historically provides better absolute and risk adjusted returns compared to the broad based benchmark. Equity Performance by Quintiles of Volatility, % Can limit drawdowns in times of financial stress, potentially avoiding prolonged recovery periods. Financial Crisis - Peak to Trough Performance by Volatility Quintile 0% 12% 8% 4% -10% -20% -30% -40% -50% Quintile 1 (Least Volatile) Quintile 2 Quintile 3 Quintile 4 Quintile 5 (Most Volatile) -60% 0% Quintile 1 Quintile (Low Volatility) 2 Quintile 3 Quintile 4 Quintile 5 (High Volatility) -70% Sharpe Ratios (Annualized) by Quintiles of Volatility, Quintile 1 (Low Volatility) 0.98 Quintile Quintile Quintile Quintile 5 (High Volatility) 0.17 Source: BMO. Includes 1,000 largest U.S. stocks by market cap. Volatility defined as 36-month price return volatility. Drawdown Return Required to Break Even Quintile 1 (Low Volatility) % 47.2% Quintile % 66.9% Quintile % 66.7% Quintile % 103.8% Quintile 5 (High Volatility) % 173.9% Source: Bloomberg monthly returns from 9/30/07 to 3/31/09 on the S&P 500 Index. Volatility defined as trailing 12- month volatility. Sharpe Ratio is the average return earned in excess of the risk free rate per unit of volatility or total risk. Volatility is defined as a statistical measure of the dispersion of returns for a given security or market index. Volatility can be measured by using the standard deviation or variance between returns from that same security or market index. One may not invest directly in an index. Past performance does not guarantee future results.

3 The Factor/Diversification Trade-Off The Low Volatility Case High Conviction Undiversified Provides meaningful factor exposure relative to broad based index Large sector biases High concentration in top 10 holdings High Conviction Sector/Stock Diversified Provides meaningful factor exposure relative to broad based index Diversified at the stock and sector level LOW VOL Low Conviction Diversified Sub-OPTIMAL Factor exposure only slightly above or in-line with broad based indexes Diversified at the stock level large # of holdings Can still contain sector biases DIVERSIFICATION

4 The Sector Low Volatility Index Methodology ALPS Sector Low Volatility (SLOW) Starting Universe Selection Criteria Weighting Methodology Rebalancing S&P Lowest Volatility Securities in each in 9* GICS Sectors Low Volatility = TTM Volatility Equal Weight % / Security % / Sector Quarterly reconstituted based on last trading dates of February, May, August and Novemeber Implemented on 3rd Friday of March, June, September and December *GICS Global Industry Classification Standard Info Tech and Telecom combined

5 The Potential Sector Low Volatility Advantage Low Volatility Trailing Twelve Month Volatility 25% 20% 15% 10% 5% 0% S&P 500 Index Source: Bloomberg as of 6/30/15 S-Net Sector Low Volatility Index Characteristics Market Cap S&P 500 S-Net Sector Low Volatility Index Weighted Average $ 134,797 $ 58,701 Median $ 18,108 $ 33,208 Trailing Twelve Month Yield 2.06% 2.67% Volatility (TTM) Price to Earnings Ratio Price to Earnings Ratio using FY1 Est Price to Earnings Ratio using FY2 Est Price to Cash Flow Ratio Price to Book Ratio % Top 10 23% 23% Holdings Diversification Selecting 5 securities from each of 9 GICS* sectors and equally weighting them provides diversification at both the stock and sector level. Top Ten Holdings Index Allocations Consumer Staples % Info Tech/Telecom % Top Ten % Other % Financials Materials Industrials Energy % Consumer Discretionary % Utilities % Industrials % Materials % Financials % Information Technology Health Care % Health Care As of 6/30/15 Utilities Consumer Discretionary *GICS Global Industry Classification Standard Energy Info Tech Spectra and Telecom Energy Corp combined % Diversification does not eliminate potential risk. Consumer Subject Staples to change. Occidental Petroleum Corp % Baxter International Inc % CVS Health Corp % Pepco Holdings Inc % Illinois Tool Works %

6 Benefits of the ETF Structure Low Expenses The ALPS Sector Low Volatility ETF is designed to be cost efficient. Unlike active mutual funds, whose objective is to beat a respective index, the ALPS Sector Low Volatility ETF is managed passively, with the objective of matching the performance of the underlying index. Consequently, the ALPS Sector Low Volatility ETF is able to eliminate many of the operating, research and transaction expenses incurred by active money managers. The expense ratio for the ALPS Sector Low Volatility ETF is.40% Ordinary brokerage commissions apply. Some index mutual funds may be subject to lower expenses. Tax Efficiency The unique structure of ETFs minimize potential capital gains. ALPS Sector Low Volatility investors transact with one another via brokers on the stock exchange, instead of directly with the fund company. All share activity with the Trust is facilitated via in-kind transfers with institutional investors, a process called the Creation/Redemption Process. This procedure essentially prevents the fund from incurring capital gains as the result of shareholder trades. The increased tax efficiency of ETFs, even in comparison to index mutual funds, makes them a viable option for those who seek to diminish the effects of taxes on their investments. Some mutual funds may have the objective of tax efficiency. *For informational purposes only and should not be considered tax advice Transparency With the ALPS Sector Low Volatility ETF, you know exactly the companies in which you are investing. The holdings of the fund s Index are available on a daily basis. Meanwhile, active mutual funds generally reveal their entire holdings quarterly, which can leave you guessing about how closely the fund manager is sticking to the objectives and style of the fund. The transparency of the portfolio also facilitates the use of the ALPS Sector Low Volatility ETF as a hedging vehicle for both institutional and individual investors. By knowing exactly what stocks make up each fund, individuals, traders, and hedge fund managers alike can easily obtain or hedge exposure to a specific group of securities. IMPORTANT DISCLOSURES & DEFINITIONS An investor should consider investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus, which contains this and other information, call or visit Read the prospectus carefully before investing. Shares are not individually redeemable and the owners of shares may purchase or redeem shares from a fund in creation units (blocks of 25,000 shares) only. The Fund is subject to the Underlying Sector ETFs Risks, making it subject to certain risks specific to each Underlying Sector ETF. The Fund is considered non-diversified which could cause greater fluctuation in share price than would occur in a diversified fund. An investment in the Fund involves risks, including loss of principal. Growth Investing Style Risk: While the Underlying Index attempts to identify stocks with growth characteristics, the securities held by the Fund may not experience such growth, which may affect the performance of the Fund. Past growth is not a guarantee of future growth or yield. Also, securities chosen for growth potential may experience greater volatility than other investment strategies or the overall stock market. Underlying Sector Risk: The Fund will be exposed to the additional risks associated with its investments in companies of each GICS sector of the Underlying Index. For more on these risks, see Risks of Underlying Sectors in this Prospectus. Replication Management Risk: Unlike many investment companies, the Fund is not actively managed. Therefore, it would not necessarily sell a security because the security s issuer was in financial trouble unless that security is removed from the Underlying Index. The ALPS Sector Leaders ETF is new and has limited operating history. S&P 500 Index: The Standard & Poor s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices. S-Network Sector Leaders Index: An index that selects the five stocks in each of the nine GICS sectors (Info Tech and Telecom combined) contained in the S&P 500 which statistically demonstrate key characteristics associated with growth and quality. One may not invest directly in an index. ALPS Portfolio Solutions Distributor, Inc. is the distributor for the ALPS Sector Leaders ETF. SLW /31/