Why You Should Focus On This Large-Cap Multi-Factor ETF In July

The multi-factor exchange traded funds landscape is growing in population terms. What remains to be seen is how many of these funds will gain traction with advisers and investors. One of the newer multi-factor funds that's already proving successful is the IQ Chaikin U.S. Large Cap ETF CLRG.

The IQ Chaikin U.S. Large Cap ETF, which debuted last December, already has about $430 million in assets under management.

What To Know

CLRG tracks the NASDAQ Chaikin Power US Large Cap Index, which evaluates potential holdings based on factors including growth and value as well as technical sentiment. CLRG is the large-cap answer to the IQ Chaikin U.S. Small Cap ETF CSML, a popular small-cap multi-factor strategy. CFRA Research highlighted CLRG as its focus ETF for July.

“Within each primary factor, various metrics are utilized, rather than relying on just one as can be common with other smart-beta ETFs,” said CFRA Director of ETF & Mutual Fund Research Todd Rosenbluth in a note. “For example, the value component includes traditional price-to-book value and price-to-sales metrics, but also long-term debt-to-equity and return on equity metrics -- providing a quality slant, in our opinion. Meanwhile, sentiment factors include earnings estimate trends, insider activity, analyst ratings and industry relative strength.”

Why It's Important

CLRG is a focused ETF with just 66 holdings as of the end of the first quarter. Those holdings are equally weighted, a methodology that can limit single stock risk.

At the end of the first quarter, CLRG's largest sector weight was financial services at just over 41 percent, underscoring the fund's value tilt. Industrials and technology combined for nearly a quarter of the ETF's weight.

“Through our independent analysis, CFRA finds the portfolio to be attractively valued based on our forward-looking qualitative and quantitative stock research,” said Rosenbluth.

What's Next

Several of CLRG's energy and financial services garner bullish ratings from CFRA analysts, indicating the ETF could be worth a look when second-quarter earnings from those sectors start rolling in later this month. CLRG has an annual expense ratio of 0.25 percent, or $25 on a $10,000 investment.

CFRA has an Overweight rating on the ETF.

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