Enhanced indexing style is shaking up the exchange traded fund industry as more investors turn to alternative investment strategies to maximize potential market returns.
In the upcoming Multi-Factor Index Investing webcast, Scott Conlon, portfolio strategist for State Street Global Advisors, David Mazza, Head of ETF Investment Strategy at SSgA, and Dimitris Melas, managing Director and Global Head of New Product Research at MSCI, will provide an overview on smart-beta, or advanced-beta, index ETF investments that utilize multiple factors to select component stocks. [Institutional Investors, RIAs Warming Up to Smart-Beta ETFs]
There are a number of different types of enhanced index ETFs, or non-traditional, market-cap-weighted index funds. The new breed of smart-beta funds still passively track a benchmark index, but the index itself employs actively managed styles.
“Accessing risk premia through the use of passive index-based portfolios has been gaining momentum in recent years,” according to MSCI. “While there is a vast body of decades-old literature on systematic factors, or what we refer here as risk premia, only recently have institutional investors accepted the notion of accessing them passively. As the number of options has proliferated, these risk premia strategies are beginning to form a third and separate category of return, sandwiched between traditional alpha and beta.”
For instance, the underlying indices can select components based on a single factor, like volatility or dividends. Additionally, the indices can select holdings based on multiple factors through a combination of book value, quality and momentum.
SSgA recently launched a suite of multi-factor ETFs, including the SPDR MSCI World Quality Mix ETF (NYSEArca: QWLD), SPDR MSCI EAFE Quality Mix ETF (NYSEArca: QEFA) and SPDR MSCI Emerging Markets Quality Mix ETF (NYSEArca: QEMM). [Qualifying Quality in Emerging Markets]
QWLD tracks an equal-weighted combination of the MSCI World Value Weighted, MSCI World Minimum Volatility and MSCI World Quality Indices in a single composite index.
QEFA includes an equal-weighted combination of the MSCI EAFE Value Weighted, MSCI EAFE Minimum Volatility and MSCI EAFE Quality Indices in a single composite index.
QEMM tries to follow an equal-weighted combination of the MSCI Emerging Value Weighted, MSCI Emerging Minimum Volatility and MSCI Emerging Quality Indices in a single composite index.
For more information on smart-beta indices, visit our indexing category.
Financial advisors who are interested in learning more about multi-factor index investments can register for the Thursday, June 12 webcast here.