Is Now a Good Time for Multifactor Value ETFs?

The S&P 500 has officially entered bull market territory; however, unknown variables have left many investors unsure of where the market is headed.

As investors cautiously look to reinstate equity positions, multifactor value ETFs may be worth consideration. The Hartford Multifactor US Equity ETF (ROUS) offers exposure to the U.S. equity market but aims to provide less volatility over a complete market cycle compared to traditional market cap-weighted indexes.

Value stocks are well positioned right now from a historical standpoint. Past performance has demonstrated that value has tended to perform well during periods of high inflation, as well as in the early stages of a new bull market, according to Hartford Funds.

See more: “Value ETFs Have a Critical Role to Play in Portfolios

While the recent performance of U.S. benchmark indexes paints a rosy picture, just a handful of mega-cap names have driven the year-to-date broader market gains. Broader rallies — wider market breadth – are generally more sustainable. Conversely, narrow market breadth can signal trouble ahead and has often preceded market drawdowns.

Uncertainty surrounding the current economic environment has weighed on stocks and increased volatility. While headline inflation has shown signs of easing, it has remained stubbornly high. Notably, no recessionary bear market has ended before the Fed started easing financial conditions since the 1950s, according to Hartford Funds.

Invest in Multifactor Value ETFs to Mitigate Volatility

A volatility dampener can benefit portfolios in periods of market turbulence. ROUS’ potential 15% volatility reduction goal may help investors maintain their target equity exposure during chopping markets.

Nearly 75% of ROUS’s holdings demonstrate lower volatility than the Russell 1000 Index. ROUS has a beta of 0.86 since 2019, as of March 31.

The fund tries to achieve this volatility reduction by utilizing a covariance-optimization tool to assemble and weight companies as part of the fund’s portfolio construction process. The process combines companies with favorable factor scores in a way that allows them to behave independently, enhancing diversification, according to the firm.

ROUS charges 19 basis points.

For more news, information, and analysis, visit the Multifactor Channel. 

Investing involves risk, including the possible loss of principal.

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.