“LRGF uses an optimizer to construct its portfolio that weighs each stock’s targeted factor characteristics against its contribution to portfolio risk,” according to Morningstar. “This approach shrinks its allocation to factors as their volatility increases. This approach increases the ETF’s cumulative factor exposure while keeping its risk in line with its starting universe. By targeting factors with low correlations to each other and by constraining its stock and sector weightings, this strategy should diversify risk. But the optimization process is complex and opaque, which makes it difficult to assess how the portfolio will shake out.”
LRGF allocates almost 21% of its weight to tech stocks and over 28% of its combined weight to the healthcare and industrial sectors.
Morningstar has a Bronze rating on the ETF.
For more information on multi-factor strategies, visit our smart beta category.