The coronavirus is injecting a larger-than-expected dose of uncertainty in the markets, which will continue to affect investors’ decisions moving forward. Smart beta strategies can help investors navigate these murky waters, but is it for everybody?
“Investors need to be mindful that factor funds are a long-term investment,” wrote John Kinsellagh in a Real Daily article. “As noted above, certain investment attributes may fall out of favor during certain unpredictable periods in the overall market cycle. This could have a detrimental impact on that particular fund within your portfolio. However, research has demonstrated that consistently favorable investment performance is predicated on the long-term holding of stocks and of smart beta funds.”
“Investors who lack the discipline to endure short-term declines should not purchase strategic beta funds, as their instinct will always lead to panic selling during market downturns, which can diminish their overall long-term investment rate of return,” Kinsellagh added. “In order to determine whether smart-beta funds might be an appropriate investment vehicle and complement your existing portfolio, scrutinize each smart beta fund’s prospectus. Carefully consider the unique investment philosophy and structure of each fund, its associated fees and whether it fits within your overall investment objectives.”
Investors looking to get started in smart beta funds can look at:
- Xtrackers Russell 1000 US QARP ETF (QARP): seeks investment results that correspond generally to the performance of the Russell 1000 2Qual/Val 5% Capped Factor Index. The fund will invest at least 80% of its total assets (but typically far more) in component securities of the underlying index. The underlying index is designed to track the equity market performance of companies in the United States selected on the investment style criteria of quality and value.
- Xtrackers Russell 1000 Comprehensive Factor ETF (DEUS): seeks investment results that correspond generally to the performance of the Russell 1000 Comprehensive Factor Index. The fund, using a “passive” or indexing investment approach, seeks investment results that correspond generally to the performance of the underlying index, which is designed to track the equity market performance of companies in the United States selected on the investment style criteria of value, momentum, quality, low volatility, and size. It will invest at least 80% of its total assets (but typically far more) in component securities of the underlying index.
- Xtrackers FTSE Developed ex US Comprehensive Factor ETF (DEEF): seeks investment results that correspond generally to the performance of the FTSE Developed ex US Comprehensive Factor Index. The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities of issuers from developed markets countries other than the United States. The index is designed to track the equity market performance of companies in developed countries selected on the investment style criteria of value, momentum, quality, low volatility, and size.
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