Multi-Factor ETFs: The Evolution of Smart-Beta | ETF Trends

With the brightest minds on Wall Street advising people to pick their spots, exchange traded fund investors can also gain targeted exposure to the markets through smart-beta or factor-based strategies.

On the upcoming webcast, Why Factor Investing is Important in Today’s Market, Robert Bush, ETF Strategist at Deutsche Asset Management, Brad Zucker, Senior Product Manager at FTSE Russell, Lance Allen, ETF Regional Vice President of Deutsche Asset Management, and Linda Zhang, Senior Portfolio Manager and Head of Research at Windhaven Investment Management, will help outline the strategy behind factor-based investments and what the various themes can do for investors.

For example, the relatively new Deutsche X-trackers Russell 1000 Enhanced Beta ETF (NYSEArca: DEUS) and Deutsche X-trackers FTSE Developed ex US Enhanced Beta ETF (NYSEArca: DEEF) both track enhanced beta FTSE Russell indices that target quality, momentum, value, size and volatility – five key factors many financial institutions have looked at to help gain an edge over traditional beta indexing methodologies.

When considering value investments, investors may consider some intrinsic measure of a company, like earnings, book value of equity, or sales, and the price that the market puts on the measures. The lower the price, the better the perceived value makes the investment comparatively cheap to others.

The size factor considers market-cap as an indicator of performance, with small-cap stocks historically outperforming large-caps. Smaller companies are in some respects are seen as being marginalized – small-caps are less liquid, have less coverage and are not part of well known indices. These same characteristics, though, may make small-caps popular plays to capture growth ahead.