Biggest Multifactor ETF Owners: Issuers

Most of the flows into 2019's most popular multifactor ETFs are coming from inside the house.

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Reviewed by: Lara Crigger
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Edited by: Lara Crigger

At a glance, multifactor ETFs appear to be gaining steam in 2019. Year to date, the 278 ETFs that use multifactor strategies (excluding leveraged and inverse products) have brought in $7.1 billion in new net investment dollars, with funds from Goldman Sachs, John Hancock and other large asset managers attracting plenty of headlines (including from us!).

While it's true that large amounts of cash are moving into select multifactor funds, much of the growth appears to be from these asset managers eating their own lunch, as opposed to an organic groundswell of retail or advisory demand for multifactor strategies.

US Large Cap ETFs Attract Most Assets

For starters, most of the new net money into multifactor strategies so far in 2019 has been concentrated into the top 10 largest inflow-getters. Together, these 10 ETFs account for $6.9 billion in new assets, or a whopping 96% of all net flows:

 

Multifactor ETFs With Highest YTD Net Flows
TickerFundERAUMYTD ReturnYTD Flows ($M)
GSLC Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF0.09%$6.13B19.92%$1,670.82
FXU First Trust Utilities AlphaDEX Fund0.63%$1.35B8.04%$910.51
RODM Hartford Multifactor Developed Markets (ex-US) ETF0.29%$2.32B11.40%$821.58
OMFL Invesco Russell 1000 Dynamic Multifactor ETF0.29%$1.04B21.22%$697.53
FLQL Franklin LibertyQ U.S. Equity ETF0.25%$1.21B20.14%$696.32
SPHD Invesco S&P 500 High Dividend Low Volatility ETF0.30%$3.36B13.21%$565.13
JHEM John Hancock Multifactor Emerging Markets ETF0.55%$816.08M11.40%$493.30
IGF iShares Global Infrastructure ETF0.47%$3.23B19.12%$364.40
AGGY WisdomTree Yield Enhanced U.S. Aggregate Bond Fund0.12%$741.61M8.26%$338.24
JHMM John Hancock Multifactor Mid Cap ETF0.45%$1.19B22.56%$321.36

Source: ETF.com; data as of July 26, 2019

 

The Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC) alone has brought in almost $1.7 billion so far in 2019. Last week, GSLC brought in $591 million, bringing it above $6 billion in assets under management and placing it among the ETFs with the highest weekly creations (read: "Weekly ETF Inflows Slow To $2.3B").

The majority of the biggest-drawing multifactor ETFs are U.S. large cap funds, like GSLC, including the $1.0 billion Invesco Russell 1000 Dynamic Multifactor ETF (OMFL); the $1.2 billion Franklin LibertyQ U.S. Equity ETF (FLQL); and the $3.4 billion Invesco S&P 500 High Dividend Low Volatility ETF (SPHD).

Other top flows-getters included the $1.4 billion First Trust Utilities AlphaDEX Fund (FXU), which weights utilities according to value and growth factors, and the $742 million WisdomTree Yield Enhanced U.S. Aggregate Bond Fund (AGGY), the only fixed income multifactor fund to make the list.

Popularity Not Tied To Performance

Curiously, money moving into these funds doesn't appear to be chasing performance. None of 2019's most popular multifactor ETFs has provided outperformance.

In fact, the best-performing multifactor ETFs are a blend of semiconductor and broad tech plays, with a few outliers, such as gold miners and Brazil equities:

 

Best-Performing Multifactor ETFs YTD
TickerFundIssuerAUMYTD Return
SGDJ Sprott Junior Gold Miners ETFSprott, Inc.$66.67M40.22%
PSJ Invesco Dynamic Software ETFInvesco$539.40M35.25%
FTXL First Trust Nasdaq Semiconductor ETFFirst Trust$29.44M35.17%
FXL First Trust Technology AlphaDEX FundFirst Trust$2.41B32.93%
JHMT John Hancock Multifactor Technology ETFJohn Hancock$59.61M32.34%
PSI Invesco Dynamic Semiconductors ETFInvesco$188.49M31.23%
FBZ First Trust Brazil AlphaDEX FundFirst Trust$142.28M29.42%
PKB Invesco Dynamic Building & Construction ETFInvesco$110.64M29.37%
DTEC ALPS Disruptive Technologies ETFSS&C$75.51M29.02%
FFTY Innovator IBD 50 ETFInnovator Capital Management$431.88M28.11%

Source: ETF.com; data as of July 26, 2019

 

In contrast, only three of 2019's most popular multifactor ETFs even break 20% for their year-to-date returns. That doesn't even beat the SPDR S&P 500 ETF Trust (SPY), which has returned 21.7% year to date.

Issuers Like Their Own Multifactor ETFs

Of course, performance isn't everything. It's entirely possible that—middling returns or no—retail investors would be buying these ETFs anyway, because they believe that much in their potential.

But 13F filing data suggests many of the most popular multifactor ETFs are owned largely by their own issuers, indicating asset managers are the ones funneling client cash into their own in-house products.

Goldman Sachs, First Trust, Franklin Templeton and John Hancock are all the largest stakeholders in their own multifactor ETFs:

 

Ownership Of Multifactor ETFs
TickerFundIssuerTop Holder Of FundOutstanding Shares Owned
GSLC Goldman Sachs ActiveBeta U.S. Large Cap Equity ETFGoldman SachsGoldman Sachs9%
FXU First Trust Utilities AlphaDEX FundFirst TrustFirst Trust44%
RODM Hartford Multifactor Developed Markets (ex-US) ETFHartfordMorgan Stanley12%
OMFL Invesco Russell 1000 Dynamic Multifactor ETFInvescoInvesco68%
FLQL Franklin LibertyQ U.S. Equity ETFFranklin Templeton InvestmentsFranklin Templeton Investments83%
SPHD Invesco S&P 500 High Dividend Low Volatility ETFInvescoMerrill Lynch4%
JHEM John Hancock Multifactor Emerging Markets ETFJohn HancockManuLife Financial97%
IGF iShares Global Infrastructure ETFBlackRockNorthern Trust Investments17%
AGGY WisdomTree Yield Enhanced U.S. Aggregate Bond FundWisdomTreeHorizon Investments7%
JHMM John Hancock Multifactor Mid Cap ETFJohn HancockManuLife Financial33%

Sources: ETF.com, FactSet; data as of July 26, 2019

 

The $1.2 billion Franklin LibertyQ U.S. Equity ETF (FLQL), for example, is owned 83% across two Franklin Templeton divisions: Franklin Advisers and Franklin Mutual Advisers. The $814 million John Hancock Multifactor Emerging Markets ETF (JHEM), meanwhile, is owned 97% by ManuLife Financial, parent company of John Hancock.

That's not the case for most multifactor funds launched by legacy ETF issuers like iShares, WisdomTree and Invesco. For most of these products, the largest stakeholders tend to be market makers and asset managers targeting financial advisors. The one exception is the $1 billion Invesco Russell 1000 Dynamic Multifactor ETF (OMFL), 68% of which is owned by Invesco itself.

Multifactor Revolution?

There's nothing inherently wrong with money managers buying their own book. To some extent, we ought to expect it; these companies attract clients based on the value proposition offered by their proprietary investment approaches, so why wouldn't they put clients' money into products reflecting their unique brand of thinking?

However, despite strong flows and good press, multifactor ETFs clearly remain a niche product for a niche audience. It's unclear what—if any—appeal multifactor ETFs have to a wider audience of retail investors and independent advisors; and for now, their growth appears to be hamstrung by the size of their issuers' pocketbooks.

Contact Lara Crigger at [email protected]

Lara Crigger is a former staff writer for etf.com and ETF Report.