The quality factor has stood out this year, outpacing other major market factors and the broader markets. Investors can also gain targeted exposure to this quality attribute through smart beta exchange traded funds.
In 2017 through the end of September, quality-oriented stocks have returned 19.1%, outperforming all other major factors and the Russell 1000 Index, with a return of just 11.3% for value, according to FTSE Russell. Quality exhibited the highest return among factors within the U/S. large-cap segment for the first time since 2007.
“Quality led the way in 2017 as investors sought out companies with high quality balance sheets and earnings amid concerns regarding US equity market stability and uncertainty about the future direction of Fed policy and interest rates,” David Mazza, head of ETF investment strategy, OppenheimerFunds, said in a note. “However, as our analysis indicates, factor performance is often cyclical and it can be difficult to predict which individual factors will lead from one time period to the next, so a dynamic combination of factors can provide a more resilient perspective as economies and markets evolve. For example, our dynamic multifactor index, created with FTSE Russell, has a 17.3% return in 2017 as it has adapted to the current environment.”
Investors can access a dynamic, multifactor or smart beta strategy through diversified ETFs, such as the recently launched Oppenheimer Russell 1000 Dynamic Multifactor ETF (Cboe: OMFL) and the targeted Oppenheimer Russell 1000 Quality Factor ETF (Cboe: OQAL).
The multi-factor OMFL selects companies in the Russell 1000 Index through exposure to a subset of the low volatility, momentum, quality, size and value factors.