Mutli-Factor Investing Takes on Added Importance in Volatile Markets

Multi-factor investing is worth revisiting in today’s turbulent environment, particularly for investors considering ex-US equity exposure. Enter the Principal International Multi-Factor Core Index ETF (PDEV).

PDEV is designed to provide broad index-aware developed international equity exposure while incorporating a multi-factor model and modified the weighting process to potentially enhance the risk/return profile. Multi-factor model seeks to identify equity securities of companies in the Nasdaq Developed Market Ex-US Ex-Korea Large Mid 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 Developed Select Leaders Core Index.

The coronavirus pandemic certainly tilted the capital markets upside down globally and one-way investors have been combating the fluctuations in the market is via factor investing. However, which factors tend to work best in the current market environment is one that is up for debate.

PDEV’s index uses a quantitative model designed to identify equity securities of companies in the Nasdaq Developed Market Ex-US Ex-Korea Large Mid Cap Index that exhibit potential for high degrees of sustainable shareholder value, growth, and strong momentum.

PDEV Is Pertinent

Prosaic multi-factor multi-factor ETFs select companies through exposure to a subset of multiple market factors, including low volatility, momentum, quality, size, and value factors. Investors can use these multi-factor strategies to capitalize on the cyclicality of factor performance through a dynamic overlay that screens for leading economic indicators and market sentiment to gauge the current market environment and increase exposure to the areas that tend to fare best in the given conditions.

Through a multi-factored approach, PDEV attempts to deliver enhanced returns and maximize diversification in an attempt to provide potentially improved risk-adjusted returns, compared to traditional market-capitalization-weighted indices.

PDEV can potentially provide investors a systematic tilt toward lower historical volatility as a way to provide more stability and better downside protection, along with a highly focused, yet risk-aware, exposure to mega-cap in an attempt to help investors generate better risk-adjusted returns over the long haul.

PDEV can potentially provide investors efficient access to international developed stocks with relatively low tracking errors to the international developed market. Its innovative factor definitions and combinations may enhance the risk/return profile without significantly differing from the targeted index holdings. Finally, its index-aware design may make PDEV an attractive replacement for passive, cap-weighted, and active strategies.

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.