Some Multi-Factor ETFs Are Really Working In 2019

There has recently been some chatter about the go-go days of smart beta exchange traded funds winding down, but industry observers may want to be cautious when it comes to doubting multi-factor funds because some of those ETFs are delivering the goods in 2019.

As has been noted, multi-factor ETFs as a group experienced significant population growth over the past couple of years and 2019 flows data indicate some advisors and investors are warming up to these products.

"In the last five years, many asset managers have successfully launched multi-factor index-based ETFs that combine three or more investment approaches that historically showed performance success,” CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth said in a recent note. “These factors are low volatility, momentum, size, quality and value. CFRA reviewed the performance of ten of these US-focused ETFs, which do not all use the same factors, or use them the same way, and often have different criteria for security inclusion.”

Why It's Important

This year's stars among multi-factor ETFs include the Invesco Russell 1000 Dynamic Multifactor ETF OMFL and the SPDR MSCI USA StrategicFactors ETF QUS.

As of Nov. 30, OMFL and QUS had hauled in $721.38 million and $417.18 million, respectively, in new assets this year. More importantly, those ETFs are up an average of an average of 27.9% this year compared to 25.6% for the S&P 500.

OMFL “uses all five of the aforementioned factors. But rather than just reconstituting throughout the year using the same factors as many others do, OMFL tracks an index that relies on economic indicators and risk appetite to determine the economic cycle and tilts OMFL toward certain factors,” said Rosenbluth.

OMFL charges a fairly reasonable 0.29% per year and QUS is even cheaper at 0.15%, which is low enough to potentially lure investors away from pure beta products, particularly if QUS continues outperforming the broader market by margins that render its fee a moot point.

CFRA has “positive implications” views on both OMFL and QUS.

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