Smart Beta ETF Strategies for 2017

Dhillon expanded on the list to include dividend yield as a standalone factor that covers those with higher-than-average dividends, and low size or a screen that captures excess returns of smaller firms relative to their larger counterparts.

Victory Capital offers a line of 11 volatility-weighted ETFs under its VictoryShares suite that are designed to track its proprietary CEMP indexes, including equity options like the VictoryShares US 500 Volatility Wtd ETF (NasdaqGM: CFA), VictoryShares US Small Cap Volatility Wtd ETF (NasdaqGM: CSA), VictoryShares International Volatility Wtd ETF (NasdaqGM: CIL) and VictoryShares Emerging Market Volatility Wtd ETF (NasdaqGM: CEZ). The VictoryShares volatility weighted approach should not be confused with low-vol strategies, which are designed to capture excess returns to stocks with lower-than-average volatility, beta, and/or idiosyncratic risk.

While investors can focus on single factors, an increased number are utilizing multi-factor strategies or smart beta ETFs that implement multiple factors in a single investment wrapper.

“Although academic research has identified factors that are important in explaining a stock’s risk and performance it does not discuss how exposure to these factors could be timed effectively,” Noack said. “In the absence of compelling evidence around timing individual factor strategies, investors may consider using a diversified approach.”

For example, 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) select components based on a broad set of five factors, including quality, value, momentum, low volatility and size.

The factors may provide investors with actively managed investment styles in a cheap, index-based ETF wrapper.

“Factor weightings are rooted in a strong economic rationale, emphasizing quality and value, philosophically consistent with Franklin Templeton’s approach to active stock-picking,” Mathias said. “Comprehensive custom factor definitions also focused on Momentum and Low Volatility.”

Franklin Templeton offers a suite of smart beta ETFs under its LibertyQ suite, including the Franklin LibertyQ International Equity Hedged ETF (NYSEArca: FLQH), Franklin LibertyQ Emerging Markets ETF (NYSEArca: FLQE), Franklin LibertyQ Global Dividend ETF (NYSEArca: FLQG) and Franklin LibertyQ Global Equity ETF (NYSEArca: FLQD), which also incorporate screens for quality, value, momentum and low volatility.

Financial advisors who are interested in learning more about CFP/CIMA accredited panels on the online conference can watch the 2017 ETF Trends Virtual Summit on demand.