Is Smart Beta the Way to Go Amid Coronavirus Outbreak?

In this challenging market, more investors are looking for ways to shore up their portfolios using smart beta strategies. The more education they get, the better equipped they are to use these smart beta products, especially in a market now where uncertainty reigns.

A Financial Times report noted that “over the past five years, the volume of assets invested in smart beta ETFs has risen at a compound annual growth rate of 21.5 percent to $857bn, according to data from ETFGI, a London-based consultancy, outstripping growth in traditional market capitalization-weighted ETFs by more than five percentage points.”

“The challenge of getting alpha out of active funds consistently has driven people to passive funds or smart beta,” said Deborah Fuhr, co-founder of ETFGI, in the Financial Times report. “The ability to identify factors and invest in them purely is something people have embraced.”

One ETF option to consider is the cost-effective iShares Edge MSCI USA Quality Factor ETF (BATS: QUAL)with a paltry expense ratio of just 0.15%. QUAL seeks to track the investment results of the MSCI USA Sector Neutral Quality Index composed of U.S. large- and mid-capitalization stocks with quality characteristics as identified through certain fundamental metrics.

Fund facts:

  • Exposure to large- and mid-cap U.S. stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage)
  • Index-based access to a specific factor which has historically driven a significant part of companies’ risk and return
  • Use to help manage exposure and risk within a stock allocation

Other quality-focused funds to look at:

  1. JPMorgan U.S. Quality Factor ETF (NYSEArca: JQUA): seeks investment results that closely correspond to the performance of the JP Morgan US Quality Factor Index. The fund will invest at least 80% of its assets in securities included in the underlying index. “Assets” means net assets, plus the amount of borrowing for investment purposes. The underlying index is comprised of U.S. equity securities selected to represent quality factor characteristics.
  2. Invesco S&P 500 Quality ETF (NYSEArca: SPHQ): seeks to track the investment results of the S&P 500 Quality Index. In selecting constituent securities for the underlying index, the index provider calculates the quality score of each security in the S&P 500 Index, then selects the 100 stocks with the highest quality score for inclusion in the underlying index.
  3. WisdomTree U.S. SmallCap Quality Dividend Growth Fund (NasdaqGM: DGRS): seeks to track the price and yield performance of the WisdomTree U.S. SmallCap Quality Dividend Growth Index. The index is a fundamentally weighted index that consists of the small-capitalization segment of dividend-paying U.S. common stocks with growth characteristics.

For more market trends, visit ETF Trends.