Single Factor ETFs Can Be Multifactor

June 28, 2017

That’s when people might want to introduce a low-vol supplement to the equation, to try to bring the volatility of the portfolio back to the volatility in the actual market.

In terms of what's associated with excess returns, it’s really those four factors. One part is the index methodology, which gives you some indication of what type of factor exposure you're likely to get. And then the second piece of it is, what type of factor exposure did you actually get? That’s what you see when you do the loadings and the regressions.

Typically, you're getting sensitivity to more than one factor at once when you use smart-beta strategies. Some really focus almost entirely on one factor, but in many instances, you're actually getting exposure to more than one factor at the same time.

As a result, the real question is, what happens to the portfolio when you're adding ETFs together? Are you getting exposure to all four? And is there a way to supplement or pare stuff back if you seem to be tilted too much toward one area? I think that’s what people will start to focus on going forward. WisdomTree launched dynamic hedging ETFs at the beginning of 2016. How has the asset growth compared with the permanent-hedge ETFs you launched originally? Do the dynamically hedged funds have stickier assets because investors aren’t switching in and out of them?

Siracusano: With regard to the dynamic currency hedging, the largest ETF we have in that space is the WisdomTree Dynamic Currency Hedged International Equity Fund (DDWM), which covers the broad universe. Today that’s up to about $450 million of assets. It has about a year and a half of history.

We had a very large growth of the shares outstanding in the first few months. And since then, it’s basically been trending hard. It’s at an all-time high, in terms of the shares out. It’s not as if it’s being created and redeemed back and forth.


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