Not all stocks are created equal.
That’s largely the idea behind GraniteShares’ XOUT U.S. Large Cap ETF (XOUT), which launched in October. While the market is near all-time highs, not all names are set to outperform and GraniteShares is aiming to effectively X-out those stocks for investors.
“There are good companies that will outperform over time, and there are bad companies,” said GraniteShares founder and CEO Will Rhind on “ETF Edge.” “So why not get rid of the bad companies and keep the good?”
XOUT takes the largest 500 stocks in the market by market cap and excludes half of them based on 7 fundamental metrics: revenue growth, hiring growth, capital deployment, share repurchases, profitability, deposit growth, earning sentiment and management performance. This leaves 250 stocks in the ETF that are deemed the most likely to outperform.
As of right now, the top five holdings in the ETF are big tech names: Apple, Microsoft, Alphabet, Amazon and Facebook. Tech also happens to be the best-performing sector this year in the broader market.
Charles Schwab is another stock that isn’t a holding in XOUT, and Rhind used it as an example of how the ETF’s metrics determine market underperformers. He emphasizes that the stock, which has soared 43% since its October low, was actually excluded from the ETF even before it slashed its commission costs to zero based on other factors.
“[Schwab’s] actual revenue growth has not been great,” he explained. “In terms of one of the [other] metrics that we look at, which is the performance of the CEO.”
Since its launch on October 7, XOUT has rallied 9%.