Guggenheim launches new Transparent Value funds

The three Transparent Value offerings based upon the Dow Jones RBP directional indexes include a U.S. large-cap aggressive index fund, a U.S. large-cap defensive index fund, and a U.S. large-cap market index fund
MAR 01, 2011
Guggenheim Partners LLC has announced the launch of three Transparent Value mutual funds. The funds are based upon the Dow Jones RBP line of directional indexes. RBP — Required Business Performance — measures the business performance implied in the price of a stock. Once the RBP has been calculated, a probability is assigned as to the likelihood that the management of a given company can deliver that RBP. The funds use a management strategy designed to track the total return performance of their respective Dow Jones Indexes. “The construction of these funds is based on what we consider to be the next generation of index design and represents a new valuation methodology for stocks,” said Scott Minerd, chief investment officer of Guggenheim Partners, which has more than $100 billion in assets under supervision. The three initial Transparent Value offerings based upon the Dow Jones RBP directional indexes include a U.S. large-cap aggressive index fund, a U.S. large-cap defensive index fund, and a U.S. large-cap market index fund. Transparent Value LLC, was started in 2003. The firm first worked with Dow Jones on its first RBP-based index funds in March 2008. Guggenheim acquired a controlling interest in the firm last May. Essentially, the methodology underpinning the Transparent Value funds is a discounted-free-cash-flow model. There's one big exception, however. Rather than trying to determine the value of a stock by making a series of assumptions about growth, Transparent Value reverses the discounted-cash-flow formula to calculate the growth required to support the stock price. In other words, the methodology uses a company's current stock price and works backward to determine the required revenue to support that price. “The RBP methodology is based upon a very simple investment question,” said Julian Koski, co-founder of Transparent Value: “Can management deliver the required business performance to support the price of the stock?” Thus, RBP examines things such as how many iPods Apple has to sell, or how many stores Starbucks has to open, or how many packages FedEx has to ship to support the price of its stock. The investment methodology is designed to fuse fundamental research with a consistent quantitative approach to security selection and portfolio construction. The idea? To generate attractive risk-adjusted returns, even during a difficult market environment. “The question is not what is a company worth,” noted Mr. Koski.. “Rather, it's whether a management can deliver the performance implied in the price of the stock.”

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