Furthermore, the dynamic aspect starts with an equal weighting to each factor plus an additional weight based on a calculation of a factor’s standard momentum and long-term reversal signal relative to other factors. The additional weights to a specific factor are capped at a max of 15% and a minimum of -15% relative to the equal weights.
The methodology also creates factor portfolios focused on an individual factor other than momentum. These factor based sugroups are reconstituted in four so-called tranches with each tranche reconstituted in each quarter. The staggered rebalancing is intended to diversify risk.
“The new PIMCO RAFI Dynamic Multi-Factor ETFs marry multi-factor investing with a true smart beta strategy, Fundamental Index, thereby providing two alpha engines in a single package,” Rob Arnott, Chairman and Chief Executive Officer of Research Affiliates, said in a note.
For more information on new fund products, visit our new ETFs category.