Smart beta exchange traded funds that incorporate multiple factor investment styles are revealing shifts in the current markets, with FTSE Russell Factor indices showing diminished momentum outside the U.S.
“Momentum has had less of an influence in emerging and non-US developed markets in the last six months according to the FTSE Comprehensive Factor Indexes,” according to a FTSE Russell note.
The FTSE Comprehensive Factor Indices, which were developed for the Deutsche X-trackers factor-based ETF suite, are based on five factors recognized as contributing to equity market performance, including quality, value, momentum, low volatility and size. The smart beta ETFs are rebalanced in march and September to ensure an accurate reflection of current market conditions.
“There are a number of single- and multi-factor indexes that have been shown to produce index returns in excess of the broad market benchmark index over the period of our analysis,” Rolf Agather, Managing Director of North America Research for FTSE Russell, said in a note. “And to the extent that the behavior of market factors is cyclical, many indexes are now combining multiple factors to gain diversification. Our new comprehensive factor indexes are designed to diversify the index exposure across our five target market factors in a transparent way.”