There are numerous market factor premiums that enhance investments over the long haul, and investors who are interested in factors may consider smart beta ETFs that can capitalize on these premiums.
For example, investors can look to the Chaikin Power Gauge, a multi-factor stock selection tool that may help create a more diversified solution to potentially enhance returns over time. ETF investors may gain exposure to a diversified multi-factor approach through the IQ Chaikin U.S. Small Cap ETF (NasdaqGM: CSML) and the large-cap version tracking the same smart beta Chaikin Power Gauge strategy, the IQ Chaikin U.S. Large Cap ETF (NasdaqGM: CLRG).
“What’s great about the Chaikin Power Gauge tool is that it allows you to access a lot of detailed transparency on all three thousand securities that make up the Russell 3000,” Salvatore Bruno, Chief Investment Officer & Managing Director for IndexIQ, said at the 2018 Morningstar Invest Conference.
As a way to diversify and potentially enhance returns, the Chaikin Analytics approach found under CSML and CLRG combine various proven factors, notably value, growth, technical and sentiment.
For example, Valero Energy has been given a very bullish rating on all four of its value, growth, technical and sentiment factors. Valero Energy Corp is the second largest component under CLRG’s at 1.8% of the underlying portfolio.
Through the Chaikin Power Gauge stock rating tool, potential investors can look up the various holdings and dive deeper down into the four main factors to find out the sub-metrics that help define the Power Gauge’s rating system.
The value factor includes screens like LT debt to equity ratio, price to book value, return on equity, price to sales ratio and free cash flow. Technical factors cover price trend, price trend rate of change, relative strength vs. market and volume trend. Growth factors include earnings growth, earnings surprise, earnings trend, projected P/E ratio and earnings consistency. Lastly, the sentiment factor screens for earnings estimate trend, short interest, insider activity, analyst ratings and industry relative strength.
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