Domestic large-cap equities are likely to remain in style for the foreseeable future. Investors looking to apply factors to the recipe can ease the burden and eschew factor timing with the Principal U.S. Large-Cap Multi-Factor Core Index ETF (PLC).
Just over a year old, PLC 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.
Individual factors produced uneven returns during different periods or exhibited more cyclical returns. For example, quality and momentum may have outperformed in 2017, but the two factors were also the worst performers in 2016. As a result, investors may want a multi-factor approach, like PLC, as opposed to trying to time single factors. Investors, though, can still tactically over- or underweight single factors to express a market view over the short-term as well.
Fantastic Foundational Factors
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.
Additionally, PLC tilts more toward the growth factor than value, which is important today as the former continues topping the latter.
Investors can still enhance their portfolios as the bull market extends with growth-oriented stocks that continue to perform despite the recent bouts of volatility.
Growth stocks are often associated with high-quality, prosperous companies whose earnings are expected to continue increasing at an above-average rate relative to the market. Growth stocks generally have high price-to-earnings (P/E) ratios and high price-to-book ratios. Still, data suggest the growth/value premium isn’t overly elevated relative to historical norms.
PLC holds 156 stocks with an average market capitalization of nearly $145 billion. The fund allocates nearly 31% of its weight to technology stocks, including Apple and Microsoft, and over a quarter of its combined weight to healthcare and communication services names.
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.