Multi-factor strategies are becoming an increasingly important part of the smart beta landscape, particularly in volatile markets when investors are looking to reduce volatility and hone in on quality stocks.
The Oppenheimer Russell 1000 Dynamic Multifactor ETF (Cboe: OMFL), which recently celebrated its first anniversary, provides efficient access to the low volatility, momentum, quality, size and value factors.
Investors may combine the various factors to gain an easy-to-use and quick way to access a diversified market position. This combined factor or multi-factor, smart beta approach may be a good core position for any equity portfolio. OMFL holds nearly 230 stocks and targets the Russell 1000 OFI Dynamic Multifactor Index. The recent market environment has been conducive to low volatility and quality exposure.
“This shift in factor emphasis resulted in strong relative performance for the Russell 1000 OFI Dynamic Multifactor Index for the year ended November 8, 2018,” said FTSE Russell in a recent note. “Notably, the Russell 1000 OFI Dynamic Multifactor Index rose 15.7% in this period relative to a 10.1% rise for the Russell 1000 Index.”
A Quality Investing Idea
Investors looking to focus on the quality factor can do so with the Oppenheimer Russell 1000 Quality Factor ETF (OQAL). OQAL selects higher quality companies in the hopes that they perform better than lower-quality companies. The fund screens for an equally-weighted composite of return on assets, change in asset turnover, accruals, and leverage.
Related: Big Dividends, Small Volatility in This ETF
Valuing high quality value is particularly important as bull markets enter their waning stages, as some market observers believe the current bull market is doing. In the early stages of bull markets, lower quality companies see their shares soar. However, as the bull market ages, investors often exhibit a preference for higher quality fare with more compelling valuations.
“It’s no surprise that the quality and low volatility factors have performed well in 2018 as the more defensive nature of the underlying securities they represent have historically done well in volatile markets,” said Mo Haghbin, senior vice president & head of beta solutions product, OppenheimerFunds. “The shift infactor exposure in recent months to emphasize these factors over others as reflected in the FTSE Russell indexes has benefited overall index performance over the last year.”
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