U.S. equities stumbled in August, but investors in multifactor ETFs may have been able to protect achieved gains and limit losses.
The benchmark Russell 1000 fell 1.5% last month, while its value-tilted sister index the Russell 1000 Value slumped 2.4%. Meanwhile, the Hartford Multifactor US Equity ETF (ROUS) declined just 1%.
“Given the strong run in mega cap growth stocks this year many advisors are looking for a more defensive alternative. Valuations still matter after all,“ Todd Rosenbluth, head of research at VettaFi, said.
Multifactor ETFs like ROUS seek to target desired return-enhancing factors and reduce exposure to unrewarded risk exposures. ROUS is a defensive value ETF, aiming to provide more balanced exposure to U.S. large caps while also dampening volatility compared to benchmarks.
The defensive value ETF seeks to outperform traditional cap-weighted indexes and reduce volatility by 15% over a full market cycle.
See more: “Why Value Stocks Are Still Well Positioned”
How Multifactor ROUS Compares to Value Oriented IWD
While ROUS also provides exposure to value stocks, there are many things that set it apart from the iShares Russell 1000 Value ETF (IWD).
ROUS reduces concentration at the sector, market cap, and individual holding levels, enhancing diversification and limiting concentration risk. The fund limits a single stock’s weight to 1.5% of the portfolio, giving ROUS a very different portfolio composition than its passive U.S. large-cap value peers.
Being overly concentrated at the company level introduces significant idiosyncratic company risk. In cap-weighted indexes, there is an overrepresentation of mega-caps, while persistently under-representing large caps deeper within the universe. At the sector level, bubble events can enhance exposure at inopportune times.
The two funds share 276 securities, with the portfolio overlap by weight totaling 40%.
For more news, information, and analysis, visit the Multifactor Channel.
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This article was prepared as part of Hartford Funds paid sponsorship with VettaFi. Hartford Funds is not affiliated with VettaFi and was not involved in drafting this article. The opinions and forecasts expressed are solely those of VettaFi. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, a recommendation for any product or as investment advice.