ETF Watch: VictoryShares Adds Multifactor Fund
New ETF covers four factors and optimizes for low volatility.
Victory Capital is rolling out a multifactor ETF that specifically looks to minimize volatility. The VictoryShares US Multi-Factor Minimum Volatility ETF (VSMV) comes with an expense ratio of 0.35% and trades on the Nasdaq exchange.
The fund’s underlying benchmark, the Nasdaq Victory US Multi-Factor Minimum Volatility Index, is derived from the Nasdaq US Large Mid Cap Index. The methodology ranks the parent index’s component companies based on factors that include quality, value, growth and momentum.
From there, the top 20% of the companies are selected for inclusion in the index and an optimization tool assigns weighting with the purpose of minimizing absolute volatility while adhering to constraints regarding maximum weights on individual components and sectors, the prospectus said.
‘Better-Starting Universe’
“If you use a multifactor selection process up front and start with a ‘better’-starting universe—one that is more likely to maybe outperform because it has exposure to these academically proven factors—and then apply them in a low-volatility approach, the hope is that you end up with a better risk-adjusted outcome. Not only do you lower the volatility, but you also enhance the returns at the same time,” said Mannik Dhillon, president of VictoryShares.
With the latest addition, Victory Capital currently offers 13 ETFs with assets under management of more than $1.5 billion. The majority of those ETFs are volatility-weighted products, and Dhillon notes that, while volatility is used as a weighting mechanism for those funds, in the case of VSMV, it is instead an outcome that arises from the optimization process.
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