How can equity investors address the triple threat of a low return environment, scarcity of alpha and the tendency to chase performance? All of these challenges have many investors evolving their approach, utilizing smart beta exchange traded fund strategies as an alternative to traditional active and passive. While this creates opportunity, the disparate array of smart beta, and factor-based products, can create confusion and risk for investors.
On the upcoming webcast, Valuations Matter: The Time for Multi-Factor is Now, Rob Arnott, Chairman and CEO of Research Affiliates, and Andy Pyne, Equity Strategies for PIMCO, will discuss smart beta strategies that follow Research Affiliates’ fundamental indexing methodology. These innovative strategies combine diversified exposure to multiple equity factors with a thoughtful dynamic weighting process that aims to improve excess return potential.
Specifically, the PIMCO RAFI Dynamic Multi-Factor U.S. Equity ETF (NYSEArca: MFUS), PIMCO RAFI Dynamic Multi-Factor International Equity ETF (NYSEArca: MFDX) and PIMCO RAFI Dynamic Multi-Factor Emerging Markets Equity ETF (NYSEArca: MFEM) will incorporate Research Affiliates Fundamental Indexing methodology that screens for five equity factors, including value, quality, low volatility, momentum and size.
Research Affiliates Fundamental Index, like its name implies, is known for its fundamental indexing methodology. The RAFI Dynamic Multi-Factor ETFs will try to underweight the factors that are expensive compared to historical norms and emphasize those that are undervalued, which could create a buy-low, sell-high rules-based discipline.
The new PIMCO RAFI ETFs also implement fundamental indexing, which weights stocks by economic size, rather than by market capitalization, skewing holdings toward components already trading at high valuations.