A Timely Factor-Based Small-Cap ETF

Investors looking for factor-based small-cap investments have options to consider, including the Xtrackers Russell 2000 Comprehensive Factor ETF (NYSEArca: DESC).

DESC tracks the Russell 2000 Comprehensive Factor Index. That benchmark “is designed to provide transparent, cost-efficient exposure to small-cap domestic equities based on five factors – Quality, Value, Momentum, Low Volatility and Size,” according to DWS.

At a time of strength for small-caps, DESC is delivering with a year-to-date gain north of 8%. DESC;s low volatility exposure is relevant for conservative seeking small-cap exposure because traditional small-cap benchmarks are typically more volatile than large-cap indexes.

Second, the fund’s implementation of the value factor is important because small-cap value stocks have been steady at a time when their large-cap counterparts continue to disappoint.

If an investor is looking for a more diversified approach, one could combine all the factors instead of betting on a single approach. An investor would combine value, size, momentum, quality and low volatility. This would result in a portfolio that does well both up and down markets due to the diversified properties.

DESC Perks

Value stocks typically trade at cheaper prices relative to fundamental measures of value, such as earnings and the book value of assets. Small-cap value has been a winning strategy over the long-term and adding quality and low volatility, among other factors, to that mix as DESC does has the potential to reward investors.