ETF Watch: PIMCO Plans Factor Funds With A Twist

PIMCO recently filed for three ETFs that take multifactor investing to the next level. Although they track indexes, those underlying benchmarks have methodologies that are more active than most.

Research Affiliates launched on Tuesday the family of indexes that will underlie the ETFs. The indexes are are calculated by Solactive AG. The family consists of five factor strategies targeting value, low volatility, quality, size and momentum. Individual indexes are available for different geographies for all but one of the factor strategies. The momentum indexes are only available as part of the multifactor indexes, not as stand-alones, because Research Affiliates does not consider them viable investment strategies on their own, a press release said.

The three funds include the following:

• PIMCO RAFI Dynamic Multi-Factor Emerging Markets Equity ETF (MFEM)
• PIMCO RAFI Dynamic Multi-Factor International Equity ETF (MFDX)
• PIMCO RAFI Dynamic Multi-Factor U.S. Equity ETF (MFUS)

The multifactor indexes' methodologies combine multiple factors and use recent and historical metrics to tilt the portfolios toward the factors expected to outperform, according to the prospectus. Although the U.S. and international indexes combine subindexes for all five factors, the emerging markets index includes all but size. Each fund’s index equal-weights the subindexes for the factors it covers and adjusts them based on the metrics as needed.

Although multifactor ETFs have been launched by several issuers, especially those known primarily for their actively managed mutual funds, these would be the first to dynamically weight their factor exposures due to changing market conditions.

The filing did not include expense ratios, but it did indicate the funds will list on the NYSE Arca.

Contact Heather Bell at [email protected].