Quality focuses on high-quality companies by measuring profitability, efficiency, earnings quality and leverage. The quality of a company’s earnings are thought to be a better gauge of future earnings performance.
Momentum gauge singles out recent price movements-over-time as a potential indicator of future performance.
The volatility factor identifies stocks with relatively low volatility by measuring the standard deviation of five years of weekly, total local returns on each stock. Many studies have shown that portfolios with less volatility or low beta offer a combination of higerh-than-average return and smaller drawdowns.
Lastly, the size factor considers market capitalization as an indicator of performance, with small-cap stocks historically outperforming large-caps.
The comprehensive multi-factor weighting methodology may provide better risk-adjusted returns, allowing investors to capture broad market moves while limit potential downside risks.
Fiona Bassett, DeAWM’s Head of Passive Asset Management, told ETF Trends “The Deutsche Bank, FTSE Russell smart-beta partnership is a result of demand from our clients. Advisors are now increasingly using wisely constructed smart-beta strategies as a core portfolio component.”
The new ETFs also come with competitive prices as a way to stand out in a growing field of smart-beta offerings. DEUS has a 0.25% expense ratio and DEEF has a 0.35% expense ratio.