Multifactor ETFs Poised To Grow In 2017

January 04, 2017

Due to their distinct approaches, the current sector exposure they provide and the performance they achieve have been different. For example, LRGF currently has an 8% weighting in utility stocks, double that of QUS; these and other smart-beta ETFs are rebalanced, and as such, weights will shift.

CFRA thinks the high exposure to the strong-performing utilities sector also contributed to LRGF’s stronger 12.97% gain in 2016 that was ahead of the 9.71% for QUS as well as the 12.16% gain for the iShares Core S&P 500 (IVV). LRGF also has gathered significantly more assets than QUS.

In September 2015, three other multifactor ETFs from established active management firms were launched: the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC), the JPMorgan Diversified Return US Equity ETF (JPUS) and the John Hancock Multifactor Large Cap ETF (JHML). Here as well, the approaches, the sector exposures and the performances generated are different.

Different Amounts & Types Of Factors

JPUS tracks a FTSE Russell index that incorporates stocks based on their quality, value and momentum attributes. Meanwhile, GSLC uses those three factors along with low volatility in its proprietary index. Lastly, JHML tracks an index designed by Dimensional Fund Advisors that focuses just on size, value and quality.

From a sector perspective, JPUS is unique, as it had more exposure to utilities (13% of assets) than in information technology (12%). GSLC and JHML both had much higher exposure to tech (21% and 19%, respectively) and lower exposure to utilities (4% each).

Sector Exposure In Multifactor ETFs Can Be Different

But a look inside reveals that stakes in large-cap tech stocks are distinct. For example, in late December, JHML had a lower weighting in Facebook than GSLC, but it alone held semiconductor maker Broadcom.

Of the three ETFs, JPUS was the stronger performer in 2016, rising 12.08%. Yet with $1.4 billion in assets, GSLC has been by far the most popular of the multifactor ETFs highlighted in this piece.


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