Sorting through Strategic Beta

As I mentioned, a plethora of Multi-Factor names have come to market.  By digging further into the attributes, 174 Equity ETPs have Multi-Factor as an attribute at one level or another.

To give an example of the array of options an investor has to choose from, here are a list of US Equity Large-Cap Core funds with 2nd attribute of Value and 3rd Attribute of Multi-Factor (so a rather specific filter):


A question that could arise from here is how much differentiation is there between these choices?  The obvious source of discrepancy will be the underlying methodology, which of course is the selling point for each of the names.  There will also be some discrepancy from which base index is being utilized (i.e. S&P 500 vs Russell 1000 vs MSCI USA).

While knowing this is a short dated analysis, here is a return chart of the underlying indices for each of the above listed names since the end of 3Q15.

Chart 5

While there are a couple outliers, the range of returns is decently tight and most of the return streams are correlated.

This was only one view into a rather minute section of the Strategic Beta landscape.  How to fit all of the other pieces (non-US, fixed income, commodities, etc.) into an allocation and choosing whether to utilize strategic beta at all can end up being a daunting task.

Clayton Fresk is a Portfolio Manager at Stadion Money Management, a participant in the ETF Strategist Channel.

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