In February, Vanguard launched a new suite of factor ETFs including Vanguard US Value Factor (VFVA 80 Overweight), which uses book-to-price, forward earnings-to-price and cash flow-to-price metrics to rank large-, mid- and small-cap stocks.
However, unlike index-based ETFs VLUE, VTV and VOOV, VFVA is actively managed. Vanguard’s quantitative portfolio managers have discretion to buy and sell stocks at any time, rather than waiting for the next index rebalance. CFRA thinks this will prove more meaningful as the $35 million ETF gathers further inflows.
In late July, VFVA had a 26% weighing in financials, up from 25% at the end of June. The fund’s overall median market capitalization of $2.4 billion is well below the $15 billion for VLUE and Vanguard’s other index-based value ETFs.
Another firm offering actively managed equity ETFs is Davis Advisors. Dodd Kittsley, director at Davis Advisors, explained to CFRA that Davis continually educated investors that its ETFs do not track an index. Using the ETF wrapper, investors still get the transparency and trading and tax efficiency for active management. The firm launched its fourth ETF, Davis Select International (DINT) in March 2018.
Watch the video on our website: https://newpublic.cfraresearch.com/actively_managed_etfs/.
Oppenheimer, another ETF provider, supplies additional examples. Multi-factor ETFs launched in November 2017 from Oppenheimer are index-based but the factor exposure can shift dynamically on a monthly basis.
Mo Haghbin, head of product Beta Solutions at Oppenheimer Funds, explained to CFRA that these products rotate through the factors based on the leading market indicators and investor sentiment. Watch the video at our website: https://newpublic.cfraresearch.com/dynamic_mulitfactor_etfs/.
When we spoke to Haghbin in June, Oppenheimer Russell 1000 Dynamic Multifactor ETF (OMFL 28 Marketweight) was overweighted to quality and low volatility based on the decreasing global risk appetite. The fund remained positioned that way in late July, but this is not a static allocation. Throughout the first quarter of 2018, OMFL was positioned for expansion and favored size, value and momentum factors.
While the ETF’s technology weighting of 29% is relatively high versus the Russell 1000 index, top positions include MasterCard (MA 210 ***) and Texas Instruments (TXN 114 ***), which have above-average S&P Global Market Intelligence Quality Rankings.
Oppenheimer also launched single factor ETFs in late 2017, including Oppenheimer Russell 1000 Value Factor (OVLU 27 Overweight). This ETF tracks a traditional index of large-cap stocks weighted and selected using cash flow yield, sales-to-price and earnings yield.
In rating these and other ETFs, CFRA combines holdings-level analysis with fund attributes including expense ratio. Reports can be found on MarketScope Advisor.
Todd Rosenbluth is Director of ETF & Mutual Fund Research at CFRA.