Value Is Rebounding. Timing Your Investment Factors Still Isn't

Value stock ETFs are rebounding, but that doesn’t mean advisors need to go ‘all in’ on the investment factor.

Consider the U.S. Multi-Factor Model Portfolio, which is part of WisdomTree’s Modern Alpha series of model portfolios. This selection may be a bargain foundation for some, but it’s not just pure value exposure.

“This model portfolio is designed for investors with a long-term horizon looking for exposure to a broad universe of U.S. equities primarily using factor focused ETFs. The selected ETFs provide certain factor tilts that have the potential to generate excess return relative to comparable cap-weighted benchmarks over longer-term holding periods,” according to WisdomTree.

When It Comes to Investment Factors, Stay Diversified

While it’s tempting to overweight value right now, diversification remains pivotal. That box can be checked with the WisdomTree U.S. Multifactor Fund (CBOE: USMF).

USMF, which is a holding in several of WisdomTree’s Modern Alpha Model Portfolios, isn’t an ordinary value approach.

USMF 1 Year Performance

The ETF tracks the WisdomTree U.S. Multifactor Index, which is generally comprised of 200 U.S. companies with the highest composite scores based on two fundamental factors (value and quality measures) and two technical factors (momentum and correlation).

WisdomTree’s U.S. Multifactor Index (WTUSMF) was designed to tap into the diversification elements of equal weighting, while also aiming to mitigate the increased volatility and sector bets that can arise from a simple equal-weighted strategy. As a byproduct of its modified equal weighting, it allocates nearly one-third of its weight to mid-caps,” notes WisdomTree analyst Matt Wagoner.

As investors look for ways to better navigate the current markets, they may consider smart beta or multi-factor exchange traded fund strategies designed to help enhance and diversify an investment portfolio. USMF is suitable for long-term investors because it removes the need for factor timing.

“Through the early weeks of 2021, WTUSMF is outpacing the S&P 500 by more than 150 basis points. If 2021 shapes up to be a turning point for a broader equity rally than one we have seen in recent years, watch out for greater outperformance from indexes less heavily reliant on outperformance from select mega cap,” concludes Wagoner.

For more on how to implement model portfolios, visit our Model Portfolio Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.