A Smart Beta ETF Earns Its Stripes

The universe of smart beta exchange traded funds continues expanding, both in population and assets under management, and U.S. equities remain fertile ground for issuers bringing fundamentally-weighted strategies to market.

Multi-factor ETFs are increasingly popular, a theme highlighted by an array of ETFs, including the Deutsche X-trackers Russell 1000 Comprehensive Factor ETF (NYSEArca: DEUS). DEUS, which hit an all-time high last Friday, makes accessible to investors a multi-factor strategy previously seen in the world of active management with cost advantages and efficiency of the ETF wrapper.

DEUS selects components based on a broad set of five factors, including quality, value, momentum, low volatility and size.

These factors have been traditionally found in actively managed mutual fund strategies, but as index-based ETF strategies move beyond the traditional market capitalization-weighted methodology, more money managers are crafting customized passive index-based ETFs that incorporate active styles or factors.

The ETF follows the Russell 1000 Comprehensive Factor Index and holds 835 stocks. Factor investing combines low-cost, systematic approach found in passive investments with research driven benchmark outperformance found in actively managed portfolios and cutting edge alpha capture in alternative strategies.