An assessment of market factors that are experiencing strength can give investors a sign post on where they should allocate their capital, especially in uncertain times like now. That said, more investors are hopping on the factor investing train despite the current market headwinds.
“Factor investing is getting new love among investors in this time of high inflation, escalating interest rates, wild volatility and crashing security prices, according to a survey by asset manager Invesco,” a Chief Investment Officer article explained.
Additionally, the adoption of factor investing has not been relegated to just stocks. The bond market is also getting attention with a factor investing strategy, which is ideal given that both asset classes have been following each other for much of the year.
“Adopting factors to construct more resilient portfolios is happening for both stocks and bonds, which have been hammered this year, noted the survey,” the article said further. “The report was based on interviews with 151 institutional and other kinds of professional investors. Factor allocations are on the rise, the report finds, with 41% of respondents increasing allocations over the past year and 39% planning to do so in 2023.”
Factor Flexibility When Conditions Change
As opposed to having to assess what factors are trending higher given the current market conditions, it would be nice to have an exchange traded fund (ETF) with the flexibility to adapt to the times. Such an ETF exists in the Global X Adaptive U.S. Factor ETF (AUSF).
AUSF seeks to provide investment results that correspond generally to the price and yield performance of the Adaptive Wealth Strategies U.S. Factor Index. The fund invests at least 80% of its total assets in the securities of the index. Its 80% investment policy is non-fundamental and requires 60 days prior written notice to shareholders before it can be changed.
The index is designed to dynamically allocate across three sub-indexes that provide exposure to U.S. equities that exhibit characteristics of one of three primary factors: value, momentum, and low volatility. Furthermore, AUSF comes with a low expense ratio of 0.27%.
AUSF provides investors with:
- Outperformance potential: AUSF seeks to outperform traditional market capitalization-weighted indexes by allocating across three factors that have historically demonstrated advantages compared to broad benchmark indexes.
- Dynamic factor allocation: AUSF either allocates to two factors with a 50%-50% weighting, or all three factors with a weighting of 40%-40%-20%, depending on the trailing returns of each factor.
- Tax efficiency: Dynamically allocating across multiple factors within one ETF can result in tax efficiencies compared to buying and selling individual factor ETFs.
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