There are dozens of multi-factor ETFs dedicated to domestic large-cap equities and many of these funds follow similar methodologies, making it difficult for advisors and investors to find legitimate standouts.
The Principal U.S. Large-Cap Multi-Factor Core Index ETF (PLC) is one fund in this category with that standout potential.
PLC, which debuted last July, is designed to provide broad index-aware U.S. large cap equity exposure while incorporating a multi-factor model and modified weighting process to potentially enhance the risk/return profile. The multi-factor model seeks to identify equity securities of companies in the Nasdaq US Large Cap IndexSM that exhibit potential for high degrees of sustainable shareholder yield (value), pricing power (quality growth), and strong momentum. The Fund’s objective is to track the Nasdaq US Large Cap Select Leaders Core IndexSM.
Rather than adhering to the prosaic multi-factor approach, which includes some combination of traditional investment factors, PLC focuses on quality growth, shareholder yield and price momentum.
Principal’s multi-factor Core ETFs, including PLC, are designed to serve as the foundation of an investor’s portfolio, complementing alpha-generating, high active share strategies. As a global asset manager with a heritage of factor investing expertise, Principal now offers a broader set of factor-based strategies to address a wider net of investment objectives and outcomes.
Home to nearly 170 stocks with an average market capitalization of $109.1 billion, allocates over 27% of its weight to the technology sector, allowing the fund to stick to the objectives of quality growth and price momentum. With the quality purview in mind, PLC is lightly allocated to energy, real estate, and utilities names; groups that have been under dividend stress this years.
The quality factor is a point of emphasis for a growing number of strategic beta ETFs. Though there has been debate surrounding defining quality as it pertains to factor-based investing, quality companies and dividend-paying stocks often go hand-in-hand because those dividends are seen as signs of stable earnings and thoughtful management.
Dividend payments and net stock buybacks, which are the key components of shareholder yield. These themes are under duress this year due to the coronavirus pandemic, but none PLC’s top 10 holdings that are dividend payers have cut their payouts. In fact, many of the fund’s dividend-paying components are likely raisers of their payouts this year.
For more on multi-factor strategies, visit our Multi-Factor 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.