A Fast Start For This Multi-Factor ETF

Multi-factor ETFs are among the products driving smart beta growth. That includes the Principal U.S. Mega-Cap Multi-Factor Index ETF (NasdaqGM: USMC), which debuted in October 2017.

USMC tries to reflect the performance of the Nasdaq U.S. Mega Cap Select Leaders Index, which is comprised of companies with the largest market capitalization taken from the Nasdaq U.S. 500 Large Cap Index and screened based on a quantitative model. USMC is a multi-factor fund, an increasingly popular strategy within the broader smart beta universe.

Still a month away from its first anniversary, USMC has $1.78 billion in assets under management, making it one of the most successful ETFs of any variety to debut last year.

USMC “plays defense, not offense. Megacaps are often the bluest of blue-chip stocks: companies with strong balance sheets and robust earnings that can usually weather downturns well,” reports John Waggoner for InvestmentNews.

More USMC Details

USMC’s underlying index utilizes a modified equal-dollar weighting methodology where securities in the top 10% of aggregate market capitalization are weighted by market-cap, but the remaining securities are equally weighted and volatility adjusted to give a higher tilt toward those that are more liquid and less volatile.

USMC holds 53 stocks with an average market capitalization of $228.86 billion, Over 29% of the ETF’s holdings are considered cyclical while 31.55% are defensive. Just over 39% of USMC’s holdings are classified as “sensitive,” a group comprised of the technology, communication services, energy and industrial sectors.