North Square

Disciplined Value ETF

U.S. Equities

The investment objective of the North Square Disciplined Value ETF (the “Fund”) is to outperform the Russell 1000® Value Index over a market cycle using a fundamental investment approach.

Principal Investment Strategies

The strategy invests primarily in large-capitalization stocks of $3 billion and above at purchase. The Fund’s investing philosophy is grounded by three main foundational ideas:

  1. Contrarianism pays. Because stocks of companies whose recent results have been poor tend to be underpriced, investing in low-expectations, out-of-favor, statistically cheap stocks is the first step in a winning strategy.  Investors often fail to recognize the strong reversion to the mean in corporate performance and extrapolate near-term results, causing the stocks of companies that have recently performed poorly to be underpriced.
  2. Statistical cheapness is necessary but not sufficient. Many stocks deserve to be cheap, either because the company’s growth prospects are so poor or the risk associated with the stock is so high. To distinguish between stocks that are merely cheap and those that are truly undervalued, the successful contrarian investor employs risk-aware valuation disciplines that are grounded in long-term fundamental analysis.
  3. Value traps can be avoided. Statistically cheap, undervalued stocks can stay that way for a long time.  Without a positive catalyst, the stock is likely to languish.  Because the stock is neglected for a reason (poor recent results, earnings misses, bad news in headlines, etc.), there needs to be a catalyst for investors to re-engage with the stock and become constructive about the story. The best value managers side-step value traps by waiting until investor sentiment ceases to deteriorate and a positive catalyst is on the horizon.

The Fund’s stock selection process follows along the lines of the three philosophical tenets:

  1. Start by identifying statistically cheap stocks;
  2. Distinguish between those that are merely cheap and those that are truly undervalued using valuation exercises fueled by fundamental analysis; and
  3. Employ timeliness tools to gauge investor sentiment to minimize the likelihood of stepping into a value trap.

Key metrics include (scroll down for definitions):

  1. Statistical Cheapness metrics: price/earnings, price/book, price/cashflow, dividend yield;
  2. Valuation models: multiple regression theoretical P/E analysis, implied growth rate analysis, PEGY ratios, Free Cash Flow Yield, HOLT CFROI;
  3. Timeliness indicators: Predicted earnings surprise, analysts revisions, insider activity, price trend analysis.

The strategy will typically hold 40-60 positions.

 

Availability

Fees and Expenses of the Fund

The table below describes the fees and expenses that you may pay if you buy, hold and sell shares of the Fund. Investors purchasing or selling shares of the Fund in the secondary market may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table.

Annual Fund Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)
Management Fees(1) 0.38%
Distribution and Service (12b-1) Fees 0.00%
Other Expenses 0.00%
Total Annual Fund Operating Expenses 0.38%

 

(1) The Fund’s adviser provides investment advisory service, and is responsible for all of the expenses and liabilities of the Fund, inclusive of fees and expenses of other investment companies in which the Fund may invest, except for any brokerage fees and commissions, taxes, borrowing costs (such as dividend expense on securities sold short and interest), and extraordinary expenses such as litigation, in return for a “unitary fee.”