New Capital Expenditures ETF Looks To Capitalize On Growth

A new entrant into the exchange-traded fund world has released a product designed to take advantage of companies with a penchant for capital expenditures.

On Wednesday, the Elkhorn S&P 500 Capital Expenditures Portfolio (CAPX) debuted as a way of gaining access to the S&P 500 Capex Efficiency Index.  This index was created to screen 100 companies within the S&P 500 with the most efficient reinvestment of capital back into their business. 

Each company in CAPX is equal weighted to enhance the impact of smaller stocks within the portfolio.  This methodology levels the playing field compared to a traditional market-cap weighted index. 

The goal is to segment companies that are looking to innovate and grow using existing cash flow rather than return money to shareholders in the form of buybacks and dividends. 

The fund defines capex efficiency as providing exposure to stocks that have maximized sales per unit of capital expenditures.  It is not strictly based on the total amount of capital expenditures, which might favor larger firms. 

Ben Fulton, CEO of Elkhorn Investments, noted that “Capex is the reinvestment of resources back into a business and a key driver of future growth, yet an overlooked area of today's market.”

This ETF is the first of its kind to focus solely on capital expenditures as a fundamental screening requirement.  CAPX will be immediately available for trading on the NASDAQ exchange and will charge a reasonable expense ratio of 0.29 percent.

At launch, CAPX had significant exposure to technology, financials, and consumer discretionary stocks as its top sector allocations.  The underlying holdings will be rebalanced on a quarterly basis moving forward. 

This new ETF will certainly warrant close attention as to how it performs versus the broad market SPDR S&P 500 ETF (SPY).  In addition, it will likely be judged against other fundamentally driven ETFs such as the iShares MSCI USA Quality Factor ETF (QUAL).