Through a multi-factored approach, these new smart-beta ETFs try to deliver enhanced returns and maximize diversification in an attempt to provide potentially improved risk-adjusted returns, compared to traditional market-capitalization-weighted indices.
Specifically, some argue that cap-weighted indices may put an investor at risk of chasing a rally since the best performing stocks would gain the most assets and typically have the largest weight in an index.
LRGF “currently sits in the large-value Morningstar Category, though its value tilt is less pronounced now than it has been in the past,” said Morningstar. “Still, its holdings tend to trade at lower valuations and have smaller market capitalizations than the constituents in its parent index. By design, the fund takes considerable factor risk, but it effectively diversifies firm-specific risk, only parking a fifth of the portfolio in the top 10 holdings.”
LRGF charges 0.20% per year, or $20 on a $10,000 investment, a fee that compares favorably against other smart beta strategies.
For more information on multi-factor strategies, visit our smart beta category.