The exchange traded fund industry just wrapped up another great year, and smart beta or factor-based index ETFs have quickly taken a center stage.
Smart beta or factor-based ETFs have allowed various investors to take targeted market exposures on specific styles that have traditionally been associated with actively managed investments.
The year 2016 “was probably more of a value factor environment. People looking for bargains as markets continued to go up, but [2017] there’s actually been a more story about quality, so you know even though markets are going up, there’s still some concerns, some defensiveness about the markets and how long they can keep going,” Rolf Agather, FTSE Russell’s managing director of research for North America, said at the Charles Schwab Impact Conference.
Consequently, investors may be looking into the quality factor or companies with healthy balance sheets or just higher-tiered companies that can withstand potential shocks in an extended bull market environment.
Investors interested in focusing on the quality factor have a number of smart beta options to choose from, such as the Oppenheimer Russell 1000 Quality Factor ETF (Cboe: OQAL), which targets companies in the Russell 1000 Index that exhibit greater quality characteristics such as return on assets, accruals and leverage relative to the broader U.S. equity market.
As the smart beta space grows and more investors funneled money into targeted strategies, traditional money managers and fund providers are also eyeing the space for its potential growth opportunity.
“It’s a big trend in the industry of active asset managers getting into the ETF business, and two good examples of that are Oppenheimer as Ralph mentioned on the factor side and then Franklin Templeton coming in with a suite of single-country indices,” Ken O’Keefe, Managing Director of Global ETFs for FTSE Russell, said at the conference.
For example, Franklin Templeton recently launched the suite of country-specific ETFs, including options like the Franklin FTSE Japan ETF (NYSEArca: FLJP) and Franklin FTSE Europe ETF (NYSEArca: FLEE), among others. Each of the country-specific ETFs track FTSE Russell-based indices and most come with a dirt-cheap 0.09% expense ratio.
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