Factor-based exchange traded fund investments raise a lot of questions in most people’s minds, and rightly so. As a relatively new approach in the financial world, potential investors will have to look at several aspects that need careful consideration.
On the upcoming webcast, Gimme five – five key questions for factor investors, Abby Woodham, ETF Strategist for Deutsche Asset Management, Robert Bush, ETF Strategist for Deutsche Asset Management, Rolf Agather, Managing Director of North America Research at FTSE Russell, and George Rector, ETF Consultant at Deutsche Asset Management, will outline key considerations when approaching the relatively new smart beta or factor-based ETF strategies.
Specifically, Deustche Asset Management posed five simple questions that investors should cogitate on when examining factor-based, smart beta strategies: Why should I consider an allocation to these strategies? How do I identify good factors? How do i Decide how many to include? What is a sound methodology for combining factors?
“As an increasingly popular strategy that combines some of the best attributes of the Active, Passive, and Alternative pillars, it warrants careful consideration,” Deutsche Asset Management strategists Robert Bush and Abby Woodham said in a note.
For example, the Deutsche X-trackers Russell 1000 Comprehensive Factor ETF (NYSEArca: DEUS), Deutsche X-trackers FTSE Developed ex US Comprehensive Factor ETF (NYSEArca: DEEF), Deutsche X-trackers Russell 2000 Comprehensive Factor ETF (NYSEArca: DESC) and Deutsche X-trackers FTSE Emerging Comprehensive Factor ETF (NYSEArca: DEMG) select components based on a broad set of five factors, including quality, value, momentum, low volatility and size.
These factors have been traditionally found in actively managed mutual fund strategies, but as index-based ETF strategies move beyond the traditional market capitalization-weighted methodology, more money managers are crafting customized passive index-based ETFs that incorporate active styles or factors.