Investors that want to ride the growth factor train while positioning for a possible rebound in value stocks can consider multi-factor ETFs, including the Principal U.S. Large-Cap Multi-Factor Core Index ETF (PLC).
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.
“The case for multifactor funds is essentially the case for diversification, which Nobel Memorial Prize-winning economist Harry Markowitz has described as the only ‘free lunch’ in investing,” according to Morningstar research.
PLC Power
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.
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.
Each of the primary investment factors “contributes its own unique and complementary talents in a team setting. The key to getting the chemistry right is sensible diversification—pairing factors that zig with teammates that zag under a given set of market conditions,” notes Morningstar.
Growth stocks may be seen as exorbitant and overvalued, causing some investors to favor value stocks, which are considered undervalued by the market. Value stocks tend to trade at a lower price relative to their fundamentals (including dividends, earnings, and sales). While they generally have solid fundamentals, value stocks may have lost popularity in the market and are considered bargain priced compared with their competitors.
To the advantage of investors, PLC also integrates the quality factor. With the quality purview in mind, PLC is lightly allocated to energy, real estate, and utilities names; groups that have been under dividend stress this years.
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.