A Multi-Factor Approach For Globetrotting Investors

By Todd Shriber via Iris.xyz

Multi-factor exchange traded funds (ETFs), or funds offering simultaneous exposure to more than one investment factor, are growing part of the of universe of alternatively-weighted funds.

Today, there are about 300 such ETFs trading in the U.S., roughly two-thirds of which are five years old or younger. These funds have approximately $65 billion in combined assets under management, up from just $2.2 billion a decade ago, according to Morningstar.

Multi-factor ETFs are not confined to domestic equities. In recent years, some multi-factor funds, including the JPMorgan Diversified Return International Equity ETF (JPIN), have outperformed rival, cap-weighted international equity strategies. JPIN, which turns four years old on Nov. 5, employs multi-factor security screening based on value, quality and momentum factors. Those are four of the five “top tier” investment factors with size being the other.

“Each of these factors has been vetted by multiple scholars and professional investors,” said Morningstar. “Many are present across asset classes and in different markets around the world. They have been subsequently tested out of sample and still pass muster. They are, in a word, legit.”

Exploring JPIN’s Utility

Broadly speaking, ex-US developed market equities have struggled against domestic equivalents over the past several years. As mentioned above, the JPMorgan Diversified Return International Equity ETF debuted in November 2014. Using 2015, the fund’s first full trading year as the starting point, we see that the MSCI EAFE Index has trailed the S&P 500 in two of the past three years and will likely do so again in 2018.

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