Smart beta exchange traded funds continue proliferating and playing pivotal roles in the staggering growth of the broader ETF space.
Institutional investors have been gravitating toward ETFs that focus on investment factors ranging from low volatility to momentum to value, a trend many industry observers and issuers expect will persist in the years ahead.
"Asset managers have been advocating the usage of index-based products focused on minimum volatility, quality, momentum and other factors in recent years, suggesting that these were better ingredients for portfolio construction," said CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth in a note out Tuesday. "In recent months, some of them have taken the logical next step and put these smart beta products to use in their own kitchens."
Some are explicitly dedicated to multi-factor asset allocation under the umbrella of a single trade. That's the case with the PowerShares Growth Multi-Asset Allocation Portfolio (BATS: PSMG), which debuted in February. PSMG seeks long-term capital appreciation through diversification.
"The Fund's target allocation of total assets: 60 percent to 80 percent in equity ETFs, 20 percent to 40 percent in fixed income ETFs and 20 percent to 30 percent in underlying ETFs that invest in foreign stocks and bonds," said PowerShares.
At its core, PSMG is an ETF of ETFs as all 14 of its components are other PowerShares ETFs. PSMG's holdings range in weights of almost 2.3 percent to 18.5 percent. The ETF's largest holdings are the Powershares FTSE RAFI US 1000 Portfolio (NYSE: PRF), one of the godfathers of the smart beta phenomenon; PowerShares Russell Top 200 Pure Growth Portfolio (NYSE: PXLG) and the PowerShares S&P 500 Low Volatility Portfolio (NYSE: SPLV).
"According to Nick Kalivas, PowerShares senior equity product strategist, blending in low volatility products with PRF provides the ETFs with risk-managed diversification," said Rosenbluth.
CFRA does not yet have a rating on PSMG, but the research firm has an Overweight rating on SPLV, one of the largest low volatility ETFs. PSMG is actively managed and does not track an index. Five of the ETF's holdings are international funds, including emerging markets ETFs.
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