Uncertain Markets Spotlight Utility of This Large-Cap Multi-Factor ETF

One good day of action notwithstanding, U.S. equities are still subject to plenty of uncertainty. Offering exposure to multiple investment factors, the Hartford Multifactor US Equity ETF (NYSEArca: ROUS) is one ETF for today’s environment where no one is quite sure what the next move for riskier assets will be.

Hartford’s multi-factor ETFs all share a security selection criteria broken by 50% value, 30% momentum and 20% quality. Additionally, the funds may also include the size and volatility factors where size refers to smaller companies historically outperforming and volatility covering companies that have exhibited a history of smaller swings.

“In an environment when uncertainty persists, it’s important for portfolio allocators to control the controllable – such as fees and taxes,” said Brian Kraus, head of investment consulting at Hartford Funds, in remarks sent to ETF Trends. “Multifactor ETFs seek to deliver investors exposures to equity characteristics that are often sought by active stock pickers but cost typically lower than those associated with active fund management. Furthermore, given an ETF’s construction mechanism and trading processes, multifactor ETFs rarely expect to pay capital gains distributions.”

ROUS, which recently turned five years old, tracks the Hartford Multifactor Large Cap Index.

ROUS Advantages

Some may argue these are factors that show up in many single and multi-factor ETFs, but it is the way a company combines them that helps differ their strategies from the competition.

“Multifactor ETFs often seek to balance exposures across a diversified set of risk factors,” said Kraus. “While one or two of those factors is out of favor, the drawdown can often be offset by the other factors performing positively (given the diversified nature of characteristics like value and momentum).”

By combining the factors, ROUS may potentially improve return beyond traditional benchmarks, lessen unintended concentration risks and increase intended exposures to targeted factors. The ETF wrapper helps provide actively managed styles in a low cost, tax efficient and transparent structure.

ROUS sports lower price-to-earnings and price-to-book ratios than the Russell 1000 Index, but a higher return on equity and dividend yield. The Hartford fund’s debt-to-equity ratio is also lower than the Russell 1000’s.

Six of ROUS’s top 10 holdings, a group that combines for 13% of the fund’s weight, are members of the Dow Jones Industrial Average. None of the fund’s components exceed weights of 1.82%.

For more on multi-factor strategies, visit our Multi-Factor Chan

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.