Value, momentum, and low volatility are all solid factors to incorporate in a portfolio. Why not have all three? ETF investors certainly can with the strategized 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-indices 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. AUSF is up 48% within the past year.
- 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.
The Sun Is Shining on Factor Investing
With value making a comeback and momentum strong in the stock market, the proverbial sun is shining on factor investing. Add a dash of low volatility for protection from downturns and factor-based funds like AUSF are ready for prime time.
“Factor investing is a type of rules-based passive investing that only targets stocks displaying certain characteristics, or factors, that are shown to increase long-term performance,” a Motley Fool article explained. “Theoretically, a portfolio composed entirely of stocks with these factors should outpace the market long term. This can be done without incurring the time or expenses needed to pick individual stocks, which provides an opportunity to enhance returns without all the additional effort.”
“Economists have spent the past 50 years trying to nail down which factors are the strongest determinants of stock performance,” the article added. “Famous work by Eugene Fama and Kenneth French in the 1990s identified smaller market caps and lower price-to-book ratios as strong indicators that a stock would outpace its peers in the long term.”
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