Please try another search
Looking to diversify across asset classes, investment styles, or regions? Multifactor exchange-traded funds are worth considering.
There are around 300 multifactor exchange-traded funds listed in the US and the number is only likely to increase in the coming quarters.
Each multifactor uses its own unique criteria, giving different weighting to various factors, sectors, or countries.
MSCI (NYSE:MSCI), well-known for its diverse indices, explains that "a factor can be thought of as any characteristic relating a group of securities that is important in explaining their return and risk."
MSCI identifies six equity risk premia factors that historically provided a premium based on academic research including "Value, Low Size, Low Volatility, High Yield, Quality and Momentum." Investors considering a multifactor ETF should research the fund's factors carefully.
Below are 2 multifactor ETFs worth a look:
The Invesco Russell 1000 Dynamic Multifactor ETF (NYSE:OMFL) provides exposure to a range of large-cap companies in the Russell 1000 index, which represents the top 1000 companies by market cap in the US. These stocks are selected according to market conditions and economic cycles (such as slowdown, contraction, recovery, or expansion).
Fund managers use proprietary tools to observe economic indicator signal changes. The five investment styles, or factors, utilized are value, momentum, quality, low volatility, and size.
OMFL, which has 346 holdings, tracks the Russell 1000 OFI Dynamic Multifactor Index. The index and the ETF are reconstituted and rebalanced as frequently as every month.
The fund started trading in November 2017. The top ten businesses make up around 7% of assets of 1.2 billion. Put another way, no single company is large enough to affect the fund's returns significantly by itself. 11 industry groups are represented in the fund, starting with financials (27.6%), followed by industrials (17.4%), consumer services (16.0%), consumer goods (11.9%), and basic materials (6.0%).
Global media and entertainment group Viacom (NASDAQ:VIAC), equipment rental giant United Rentals (NYSE:URI), healthcare services company Cardinal Health (NYSE:CAH), Delta Air Lines (NYSE:DAL) and IT firm Hewlett Packard Enterprise (NYSE:HPE) are the leading names in the ETF.
Year-to-date, OMFL is up close to 20% and hit an all-time high of $39.93 on Dec. 9. A potential short-term decline toward $37 would offer an improved margin of safety for long-term investors.
The Hartford Multifactor Developed Markets (ex-US) ETF (NYSE:RODM) gives access to a range of firms in major developed markets of Europe, Canada and of the Pacific Region. Investment factors chosen by fund managers are low valuation (50%), high momentum (30%), and high quality (20%).
RODM, which tracks the Hartford Risk-Optimized Multifactor Developed Markets (ex US) Index, has 493 holdings. The fund started trading in February 2015 and net assets stand at $2 billion.
In terms of sector allocation, health care and financials have the highest weighting (15% each), followed by consumer staples (13%), industrials (12%), and consumer discretionary (10%) among others. The top names in the fund comprise around 7.5% of the assets.
Denmark-based health care group Novo Nordisk (NYSE:NVO) and Germany-headquartered life sciences business Merck (DE:MRCG), (OTC:MKKGY) are leading names in the fund. In addition, Sweden-based Investor (OTC:IVSBF) is also a top company in the RODM, which holds stakes in several listed and private companies, including other Swedish companies like industrial firms Atlas (NYSE:ATCO) and Copco (OTC:APLKY), technological pioneer ABB (NYSE:ABB), British-Swedish pharmaceutical firm AstraZeneca (NASDAQ:AZN), and telecommunications Ericsson Telefon (NASDAQ:ERIC). Other companies in RODM include: Canadian food retailer Loblaw (TSX:L) and Japanese communications group NTT Docomo (T:9437), (OTC:DCMYY).
Since the start of the year, the fund is down about 4%. Investors who are looking to add international exposure may want to keep the fund on their radar.
During Refinitiv Lipper’s fund-flows week that ended May 24, 2023, investors were overall net purchasers of fund assets (including both conventional funds and ETFs) for the sixth...
Investors were net purchasers of fund assets (including those of conventional funds and ETFs) for the fourth week in a row, injecting a net $4.6 billion for the LSEG Lipper...
Following an aggressive interest rate hiking cycle throughout 2022 and 2023, cracks began appearing in the U.S. banking sector by March, disproportionately affecting smaller...
Are you sure you want to block %USER_NAME%?
By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.
%USER_NAME% was successfully added to your Block List
Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.
I feel that this comment is:
Thank You!
Your report has been sent to our moderators for review
Add a Comment
We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
Enrich the conversation, don’t trash it.
Stay focused and on track. Only post material that’s relevant to the topic being discussed.
Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.