Risk has kept many an investor up at night, but through smart beta exchange traded fund strategies, more can rest easier knowing that a rules-based index strategy has put into place safe guards to help diversify risk.
ETF Trends publisher Tom Lydon spoke with Ted Lucas, head of systematic strategies and exchange-traded funds for Hartford Funds, at the Inside ETFs conference that ran Jan. 22-25, 2017 to talk about Hartford Fund’s recent step into the ETF space and their strategy that help to minimize risk while targeting higher returns.
“There is a lot of variation and I think investors, advisors really serve themselves and clients well by really digging into what the strategies represent,” Lucas said.
In better explaining Hartford’s line of multi-factor ETF strategies, including the Hartford Multifactor Emerging Markets ETF (NYSEArca: ROAM), Hartford Multifactor Developed Markets (ex-US) ETF (NYSEArca: RODM), Hartford Multifactor US Equity ETF (NYSEArca: ROUS), Hartford Multifactor Global Small Cap ETF (NYSEArca: ROGS) and recently launched Hartford Multifactor REIT ETF (NYSEArca: RORE), Lucas pointed to the suite’s ability to better manage risk exposure.
“We’re trying to source return enhancement by harvesting risk premiums from factors like value, quality, momentum, size and so forth,” Lucas said.
The Hartford ETFs screen components quality, momentum and value for more favorable risk-adjusted returns.
“We think about risk is the primary starting point for the design of every strategy … What risk you want to take to enhance return,” Lucas said.
Specifically, the funds all share a security selection criteria broken by 50% value, 30% momentum and 20% quality. Additionally, the funds may also include the size and volatility factors where size refers to smaller companies historically outperforming and volatility covering companies that have exhibited a history of smaller swings.
Some may argue these are factors that show up in many single and multi factor ETFs, but it is the way a company combines them that helps differ their strategies from the competition.
“I’ll suggest that there’s a lot of variation in terms of the actual strategies that drive what results in the ETF,” Lucas said. “I think what’s particular for investors you want to understand what factors are used with the signals. How they’re weighted for the portfolio.”
By combining the factors, the Hartford smart beta ETFs may potentially improve return beyond traditional benchmarks, lessen unintended concentration risks and increase intended exposures to targeted factors. The ETF wrapper helps provide actively managed styles in a low cost, tax efficient and transparent structure.
Click here to read Hartford Funds’ 2017 Outlook on ETF Trends and NYSE’s exclusive 2017 Market Outlook Channel.