A Focused Alternative to the Dow?

A Focused Alternative to the Dow?

The Dow Jones Industrial Index of 30 stocks is widely followed and has been a great long term investment. But it is by its nature dominated by US large and mega caps, which may now be on relatively expensive valuations. 

Han ETF has launched a concentrated ETF, Lloyd Focused Equity UCITS ETF (ticker FEP), based on the Solactive Lloyd Focused Equity Index, which uses a distinctive methodology for selecting stocks globally. Stocks are ranked on scores of business stability, industry risks, accounting practices, competitive dynamics and criticality of products and services – and must meet a minimum threshold on each one. The index was conceived by Swiss asset manager, Lloyd Capital GmbH.

This leads to what is arguably a more balanced and better value portfolio, and only two holdings – Microsoft and Salesforce – overlap with the Dow Jones 30. The Lloyd ETF contains two MAG 7 names, Alphabet and Microsoft, and a few other US tech names: chipmakers ASML and Applied Materials and Adobe, as well as Samsing in Korea.

The third largest holding is security group Chubb and the fourth largest is medical and biotech group Thermo Fisher- names not often seen in a top ten. Number five is an even rarer beast - UK equipment rental group, Ashtead: not a glamourous headline grabbing stock, but a very solid company with a great long run record. 

The product also owns includes two global European-listed oil companies, Shell and Total, which trade at much lower valuations than the US oil companies. Indeed, both Shell and Total have publicly said that they contemplate relisting in the US. 

In luxury goods, Lloyd has Richemont, which is one sixth of the size of the world’s largest listed luxury firm, LVMH, and also on a lower valuation.

Notably for ETF lovers, the portfolio includes the world’s largest asset manager, BlackRock, which owns iShares, which is also the world’s largest ETF manager. Elsewhere in financials, London Stock Exchange is held, but there are no banks in the ETF, which is a key differentiator from almost any other benchmark.

The Solactive index is normally rebalanced monthly, but can be rebalanced on other dates up to 3 times a year. 

The only possible sting in the tail is the expense ratio. At 0.85%, it is well above average for any sort of ETF, active or passive, standard or thematic, nowadays. Time will tell if the performance is good enough to justify the extra fees.