A Closer Look into Factor-Based, Smart-Beta ETF Investments

The new breed of smart-beta exchange traded funds are still passive in nature, like their traditional beta-indexed counterparts, but they are also based on a strict set of rules or factors that help differentiate them from the rest.

On the upcoming webcast this Thursday, Key Questions for Factor Investors, Robert Bush, ETF Strategist at Deutsche Asset Management, Arne Noack Exchange Traded Product Development at Deutsche Asset Management, Brad Zucker, Senior Product Manager at FTSE Russell, and Nicholas Baseel, ETF RVP at Deutsche Asset Management, try to shed light on factor-based investments and how investors can benefit from the strategies.

For buy-and-hold investors, multi-factor investments help combine uncorrelated investment styles to smooth out volatility. Since there are multiple uncorrelated factors at play, it helps guarantee that at least one factor will help support the portfolio during times of distress. Moreover, a multi-factor ETF removes the need for investors to babysit a portfolio and switch between factors in an attempt to time market moves.

For instance, Deutsche Asset Management offers a Comprehensive Factor ETF suite, including 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).

The Deutsche X-trackers multi-factor suite selects components based on a broad set of five factors, including quality, value, momentum, low volatility and size.

The quality factor helps hone in on the quality of a company earnings as a better gauge of future earnings performance. The underlying indices may provide a quantifiable measure of each company’s profitability, efficiency, earnings quality and leverage.