The advantages of smart beta strategies are not limited to large-cap stocks. There are scores of smart beta ETFs offering investors exposure to smaller companies, including the Xtrackers Russell 2000 Comprehensive Factor ETF (NYSEARCA: DESC).
In the ongoing struggle to efficiently access markets, more investors have turned to factor-based exchange traded fund strategies in an attempt to outperform broad market indices and better manage risks.
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 Deutsche Asset Management.
Domestic small-cap stocks as measured by the Russell 2000 Index have kept up with the U.S. large-cap segment as measured by the Russell 1000 Index year-to-date and even pulled ahead over the past month and so far into March.
A Multi-Factor Approach With DESC
DESC focuses on multiple investment, a strategy that eases investors’ burden of having to determine when specific factors are in and out favor.
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 matures, investors often exhibit a preference for higher quality fare with more compelling valuations.
Related: What You Don’t Know About Beta Can Hurt You
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.
DESC devotes over 26% of its weight to financial services stocks while the industrial and consumer discretionary sectors combine for over a third of the ETF’s weight. Technology and healthcare names combine for 21%. The ETF holds 1,451 stocks.
DESC charges 0.30% per year, or $30 on a $10,000 investment, a favorable fee among smart beta small-cap strategies.
For more on smart beta ETFs, visit our smart beta channel.