BlackRock has followed in Vanguard’s footsteps with the launch of an actively managed multifactor ETF. The BlackRock U.S. Equity Factor Rotation ETF (DYNF) relies on a factor rotation model that targets the quality, value, size, low-volatility and momentum factors. Interestingly, the ETF does not carry the iShares brand.
DYNF comes with an expense ratio of 0.30% and lists on the NYSE Arca.
At the same time, BlackRock’s iShares unit rolled out an index-based ETF that is hyperfocused on value, the iShares Focused Value Factor ETF (FOVL). That fund comes with an expense ratio of 0.25% and also lists on the NYSE Arca.
Active Multifactor ETF
DYNF selects its components from the large-cap and midcap segments of the U.S. stock market. Its model looks at the long-term return premium and the cyclical behavior of the different factors, while incorporating data around the current market cycle, valuations and recent trends to allocate to the five targeted factors. According to the prospectus, factor allocations are capped at 35%, though that is flexible due to the fund being actively managed.
Vanguard launched the Vanguard U.S. Multifactor ETF (VFMF) in February 2018 as part of its actively managed factor lineup. The fund is the most successful of the six funds, attracting $83 million in assets under management. Like DYNF, it relies on a quantitative model, but it only targets four factors—value, momentum, quality and low volatility. It has an expense ratio of 0.18%, a little more than half the cost of DYNF.
FOVL tracks an index derived from the Russell 1000 Index. The top 10% of constituents are screened out based on 12-month realized volatility, and then from there the top 10% of constituents with the most leverage are also screened out. Companies with negative sentiment scores, which are based on estimated earnings per share, are also excluded, the prospectus says.
Once companies have been screened out, the methodology assigns each remaining stock a value score based on price-to-book, price-to-dividend, price-to-earnings and price-to-cash flow from operations ratios. The 40 highest-scoring companies are selected for inclusion and from there are equally weighted. Rebalancings are conducted during monthly reviews if any of the original 40 stocks are no longer in the index, or if any of the included securities violate weighting caps, according to the document.
The fund seems similar to the Deep Value ETF (DVP), which launched in 2014 and has $271 million in assets under management. DVP uses similar criteria, but holds about half as many companies and comes with an expense ratio of 0.59%.
Contact Heather Bell at [email protected]