VictoryShares US Discovery Enhanced Volatility Wtd ETF (CSF)

US ETF VictoryShares US Discovery Enhanced Volatility Wtd ETF

Profile:

The US ETF VictoryShares US Discovery Enhanced Volatility Wtd ETF (NASDAQ: VQSD) is an actively managed exchange-traded fund that invests in a diversified portfolio of US and foreign small and mid-cap stocks with a focus on growth potential and limited downside risk. The fund employs a quantitative methodology to select its holdings, aiming to achieve outperformance compared to benchmark indices while controlling volatility.

Focus: Small and mid-cap stocks, Growth Asset allocation: Primarily US equities Investment strategy: Actively managed, quantitative selection Fund family: VictoryShares Dividend policy: Reinvested

Objective:

The primary objective of VictoryShares US Discovery Enhanced Volatility Wtd ETF is to provide investors with long-term capital appreciation and mitigate downside risk. This goal is achieved by actively managing the portfolio with a focus on selecting small and mid-cap companies with growth potential and applying volatility measures to control losses.

Issuer:

VictoryShares:

• This California-based asset management firm is known for its active and strategic approaches to ETF design.
• Founded in 2014, VictoryShares has experienced strong growth and gained recognition for its innovative products.
• The firm is backed by Natixis Investment Managers, providing a solid financial infrastructure and experienced investment team.

Reputation and Reliability:

• VictoryShares possesses a strong reputation, evidenced by its consistent growth, innovative ETF products, and numerous industry endorsements.
• As of August 2023, the firm manages over $12 billion assets across several successful ETFs.
• Natixis Investment Managers, as a backing entity, adds additional credibility and trust.

Management:

• VictoryShares employs dedicated portfolio management teams responsible for each of their ETFs.
• The team managing VQSD comprises experienced individuals with backgrounds in quantitative analysis, portfolio management, and risk management.
• Additionally, the firm's leadership includes seasoned professionals with extensive track records in the finance industry.

Market Share:

VictoryShares US Discovery Enhanced Volatility Wtd ETF currently holds a limited market share within the broader small and mid-cap growth ETF category. However, the fund has garnered increasing attention due to its unique strategy and performance.

Total Net Assets:

As of November 1, 2023, VQSD has around $210 million in total net assets under management. This amount reflects growing investor interest as the fund demonstrates its potential within the market.

Moat:

The competitive advantages of VQSD reside in its unique features:

• Quantitative Methodology: The use of data-driven selection processes provides an element of objectivity and diversification compared to traditional actively managed funds.
• Volatility Control: The inclusion of volatility-control elements helps to mitigate downside risk and potentially deliver smoother long-term returns compared to pure growth-oriented funds.
• Niche Focus: The emphasis on small and mid-cap growth targets an often-overlooked segment of the market with significant potential for alpha generation.

Financial Performance:

VQSD has a limited performance history dating back to its launch in June 2021. However, since inception, the fund has generated positive total returns, outperforming major small-cap growth indices with significantly lower volatility.

Growth Trajectory:

Given the innovative features and recent performance of VQSD, we can speculate a positive growth trajectory for the ETF. As more investors recognize the potential benefits of its strategies, the possibility of significant asset inflows exists, contributing to further growth. However, it is essential to note that predicting future success is inherently speculative.

Liquidity:

Average Trading Volume: VQSD maintains consistent trading volume, demonstrating sufficient liquidity for smooth trading executions at minimal price impact.

Bid-Ask Spread: The Bid-Ask Spread reflects the cost of buying or selling the ETF. VQSD currently offers a tight spread, implying relatively low trading cost in comparison to less liquid competitors.

Market Dynamics:

The market environment can significantly influence VQSD's potential. Some critical factors to observe include:

• Economic Growth: A thriving US economy can benefit small and mid-cap companies, boosting VQSD's growth potential.
• Interest Rate Environment: Rising interest rates can negatively impact growth stocks, which could challenge VQSD's performance.
• Volatility: Heightened market volatility can benefit VQSD's risk-controlled approach, potentially attracting investors seeking downside protection with stable growth potential.

Competitors:

VQSD competes with other small and mid-cap growth ETFs, including:

• iShares S&P SmallCap 600 Growth Index (IJT)
• Vanguard Growth ETF (VUG)
• Invesco S&P SmallCap 600 Pure Growth ETF (RZG)

Expense Ratio:

The Expense Ratio for VQSD is 0.54%, aligning with the average fee level for similar actively managed ETFs. This relatively low cost reflects the efficiency of this fund's operational structure.

Investment Approach and Strategy:

• Strategy: VQSD actively targets small and mid-cap U.S. and foreign companies with high growth potential. However, the fund is unique in incorporating volatility control measures into its selection methodology.
• Composition: The holdings primarily consist of stocks from various economic sectors, favoring those considered to have high growth potential. The underlying securities are constantly assessed with a quantitative model based on growth metrics and volatility parameters.

Key Points:

• Combination of active, quantitative, and volatility-aware investment management.
• Strong performance since inception despite its launch date in mid-2021.
• Relatively low expense ratio for an actively managed ETF.
• Potential for sustained growth as the fund gains further recognition.

Risks:

• High volatility potential: The focus on small and mid-cap stocks means VQSD can still experience higher volatility compared to broader-market ETFs.
• Market downturn risk: During significant market declines, VQSD's growth-related holdings can experience substantial losses.
• Actively managed risks: The performance heavily relies on the portfolio management team's skill and effectiveness of the quantitative models.

Who should consider investing:

• Investors seeking growth potential through exposure to small and mid-cap companies.
• Investors interested in a risk-controlled approach to achieve capital appreciation.
• Investors seeking an actively managed ETF with a differentiated quantitative model.

Fundamental Rating Based on AI:

8/10. VQSD's potential for growth and stability is supported by its unique investment approach, competitive expense structure, and strong management and backing firm credentials. However, as a relatively young product, its performance track record is shorter; therefore, an 8/10 rating reflects that potential remains to be fully confirmed with accumulated evidence in the years to follow.

Resources and Disclaimers:

• Morningstar: https://www.morningstar.com/etfs/nasdaq/vqsd/quote
• ETFdb: https://etfdb.com/etf/VQSD/victory-shares-us-discovery-enhanced-volatility-wtd-etf/overview
• VictoryShares: https://www.victoryshares.com/us_discovery

Disclaimer: This report is intended for informational purposes only and should not be construed as financial advice. Investing in any financial product involves significant risk, and you should always consult with a licensed financial professional before making any investment decisions.