By Todd Rosenbluth, CFRA
The ETF industry continues to roll out new offerings and CFRA’s forward-looking rating coverage has expand at a rapid pace. Indeed, 31% of the more than 1,300 equity ETFs rated by CFRA launched in the last three years. Our early coverage, based on a unique holdings- and cost-based approach, has enabled clients to learn about some compelling investments. Based on fund flows, investors are not waiting for an ETF to hit an anniversary before investing, as many of these young products have passed the $100 million milestone. Our approach is particularly useful when considering smart-beta strategies that combine various stock-screening attributes.
One of these newer multi-factor ETFs is JPMorgan Diversified Return US Equity ETF (JPUS). The ETF launched in September 2015 and despite lacking a three-year track record is rated by CFRA and has approximately $500 million in assets.
Jillian DelSignore, head of ETF Distribution with JPMorgan Asset Management, explained that her company’s multi-factor ETF lineup leans into well-known established factors such as momentum, quality and value in effort to capture upside potential, but also aims to minimize the downside with a risk-weighted approach to portfolio construction. CFRA discussed the firm’s ETF lineup with DelSignore at Inside ETFs in late January. The video can be watched at https://newpublic.cfraresearch.com/jpmorgan_fixed_income_etfs/.
Another multi-factor ETF to launch in 2015 is Xtrackers Russell 1000 Comprehensive Factor ETF (DEUS). DEUS, offered by Deutsche Asset Management, combines low volatility, momentum, quality, size and value factors together to build the portfolio. Relative to JPUS, DEUS has more exposure to industrials (16% vs. 9%) and less to utilities (4% vs. 11%).
Meanwhile, IndexIQ, part of New York Life Investment Management, launched two multi-factor equity ETFs in 2017. The large-cap offering, IQ Chaikin US Large Cap ETF (CLRG), came to market last December and has approximately $300 million in assets.
According to Sal Bruno, chief investment officer of IndexIQ, CLRG includes traditional value factors and growth factors along with technical and sentiment factors to give a 360-degree view of a security. These attributes include price-to-book, earnings consistency, volume trends and insider activity. Bruno also spoke to CFRA about the firm’s smart beta ETFs at Inside ETFs in a video, which can be seen at https://newpublic.cfraresearch.com/indexiq_fixed_income_smart_beta_etfs/.
CLRG’s holdings are different than other large-cap multi-factor ETFs. For example, the ETF has more exposure to financials (36% of assets vs. 11% and 7% for DEUS and JPUS, respectively) and less exposure to consumer staples (3% vs. 6% and 11%, respectively).
Other multi-factor ETFs that came to market in the last three years include Goldman Sachs ActiveBeta US Large Cap Equity (GSLC), iShares Edge MultiFactor USA (LRGF) and John Hancock MultiFactor Large Cap (JHML). Each takes a distinct approach and, as such, holds different securities.