Today OppenheimerFunds is rolling out eight factor-based ETFs, including two multifactor funds and six single-factor funds.
All the ETFs list on Cboe Global Markets, parent company of ETF.com.
The funds, their tickers and expense ratios are as follows:
- Oppenheimer Russell 1000 Dynamic Multifactor ETF (OMFL), 0.29%
- Oppenheimer Russell 2000 Dynamic Multifactor ETF (OMFS), 0.39%
- Oppenheimer Russell 1000 Momentum Factor ETF (OMOM), 0.19%
- Oppenheimer Russell 1000 Quality Factor ETF (OQAL), 0.19%
- Oppenheimer Russell 1000 Size Factor ETF (OSIZ), 0.19%
- Oppenheimer Russell 1000 Value Factor ETF (OVLU), 0.19%
- Oppenheimer Russell 1000 Low Volatility Factor ETF (OVOL), 0.19%
- Oppenheimer Russell 1000 Yield Factor ETF (OYLD), 0.19%
“There’s a shift going on that’s been going on for some times now from the Morningstar size and style boxes that we all grew up with to these academically supported persistent drivers of return, which are factors,” said Sharon French, OppenheimerFunds’ head of Beta Solutions.
“People look at growth and value as blunt instruments, while factors are much more precise—sharper knives, if you will,” she added.
Two Multifactor ETFs
OMFL and OMFS are derived from the Russell 1000 and Russell 2000 indexes, respectively. They will both target five factors in all: value, momentum, quality, low volatility and size. However, the configuration of the factors will shift depending on whether the economy and market are in an expansion, slowdown, contraction or recovery phase, the prospectus said.
“It takes our proprietary signal driven from our global multi-asset group (GMAG), and that tells us what type of market environment that we’re in—contraction, slowdown, recovery, expansion. And then utilizing the proprietary ‘sequential tilt’ methodology from FTSE Russell, it combines the factors in the way that they should be during that type of economic regime,” French said.
French notes by way of example that in a market contraction, the methodology would tilt more toward the quality factor, while in a recovery regime, the methodology would tilt more toward the value factor.
French points out that the index uses a bottom-up approach that combines factors at the stock level, while the more typical top-down approach combines factors at the index level, an approach often referred to as the “sleeve” method.
“A top-down approach is easier to implement, but we weren’t looking for ‘easy to implement.’ We were looking for the best way to get target factor exposures from a client perspective,” she said.
These aren’t the first dynamic multifactor ETFs to launch. Pimco rolled out its own dynamic multifactor ETFs in August based on FTSE indexes. However, those funds use the aforementioned sleeve approach, which relies on subportfolios. The OppenheimerFunds ETFs are the first to use a bottom-up dynamic multifactor methodology.
As of Sept. 30, OMFL’s index included 715 components, while OMFS’ included 1,220 components.
Six Single-Factor Funds
All of the single-factor ETFs are derived from the Russell 1000 Index. Each fund’s index methodology assigns the components of the Russell 1000 a score for its targeted factor, which is used along with the company’s weight in the parent index to determine its weight in the fund index, according to the prospectus.
OVOL’s underlying index had a total of 285 components at the end of September, while OMOM’s had 874. OQAL’s underlying index included 610 securities, and OSIZ’s had 644. OYLD’s underlying index included 279 at the end of September, while OVLU’s had 809.
J.P. Morgan launched its own family of low-cost single-factor ETFs just yesterday. Those five funds also track indexes based on the Russell 1000. However, their expense ratio is just 0.12%.
While the multifactor ETFs are sort of one-stop shopping, the single-factor funds allow an advisor or other financial intermediary to tilt a portfolio or even construct one from scratch themselves.
Principal Lists Int’l Multifactor Fund
On Thursday, Principal brought the total number of launches for that day to 10 with the rollout of its Principal International Multi-Factor Index ETF (PXUS) on the Nasdaq exchange.
The fund comes with an expense ratio of 0.39%.
The methodology applies a quantitative model to the components of the Nasdaq Developed Market Ex-US Ex-Korea Large Mid Cap Index to identify those offering exposure to the value, growth and momentum factors. The approach assigns more weight to those securities that are more liquid and less volatile than average. Individual securities are evaluated and ranked relative to the other securities included in their respective countries. Only the top-ranking equities are selected for the index.
As of the end of September, PXUS’ underlying index had 327 components, winnowed down from the 1,207 components in the parent index.
Contact Heather Bell at [email protected]