As a way to better diversify equity market exposure, investors can consider a relatively new smart beta exchange traded fund strategy that re-weights the S&P 500 based on companies’ business risks instead of the usual capitalization size. "We've adapted a methodology that's used in clinical trials to define population sets. So our founder comes from the biotech pharmaceutical industry, and he kept asking himself, 'Why is it science you can define population sets for predictable results, but no one's ever applied it in finance?' So, he funded a think tank and had all of these analysts go to work on figuring out a tagging method for companies that mimics, in a sense, how we do demographics," Kathy Cuocolo, President Syntax Advisors, said at Inside ETFs 2019.
Specifically, the Syntax Stratified LargeCap ETF (NYSEArca: SSPY) follows the stratified-weight version of the widely used S&P 500 Index and holds the same constituents as the S&P 500, but so-called Stratified-weighted approach refers to the weighting methodology of the underlying index where Syntax groups and distributes the weight of constituent companies that share “Related Business Risks”.
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