Factors as a Smarter Way to Create Index ETFs

Investors have been acquainted with styles or investing in asset categories for many years, and ETF providers have taken this investment approach to the next step through factor-based or smart beta strategies.

“The idea was: let’s experiment with some of these other factors – low volatility, momentum, quality, for example, and we’ve really kind of started with a very complicated multi-factor approach,” Dan Draper, Managing Director and Global Head of Invesco ETFs at Invesco Ltd., said at the 2018 Morningstar Investment Conference.

“Factor diversification can really matter, especailly for long-term investors,” Draper added.

For example, the Invesco Dynamic Market ETF (NYSEArca: PWC) was the first quantitatively constructed “intelligent” ETF launched in 2003. PWC tracks companies with superior risk-return profiles based on fundamental growth, stock valuation, investment timeliness and risk factors. Over the past 15-years, PWC has shown an average annualized return of 10.0%, compared to the S&P 500’s 9.7%.