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A Look at Factor-Based ETFs


Amid the increase in market volatility recently, it is easy and understandably so, for some to overlook new ETF launches.

This is expected since most portfolio managers and larger institutions tend to generally require some minimum length of live tracking data or “live seasoning,” before considering a major allocation to an ETF strategy.

In late April, iShares announced a partnership with the Arizona State Retirement System in launching “factor-based” ETFs, MTUM (iShares MSCI USA Momentum Factor, Expense Ratio 0.15%), SIZE (iShares MSCI USA Size Factor, Expense Ratio 0.15%), and VLUE (iShares MSCI Value Factor, Expense Ratio 0.15%).

These ETFs are based around the universe within the MSCI USA Index (corresponding ETF is EUSA (iShares MSCI USA Index, Expense Ratio 0.15%) and hone in on securities that exhibit Momentum, or Value.

And in the case of the ETF SIZE, the underlying universe, the MSCI USA Index is re-weighted utilizing a rules-based methodology which proprietarily isolates stocks that display two things: smaller average market capitalizations as well as lower realized volatility as compared to the benchmark index itself.

As one might expect, the three funds have seen sparse trading volume in a limited time as live traded products and visual screen liquidity and depth may simply not be there at times in the early going, but that does not mean that larger dollar or share allocations cannot be made efficiently via block trading.

The funds themselves are notably diversified in terms of underlying holdings, as SIZE for instance owns 604 individual names, MTUM 126 holdings, and VLUE has 604.

The top three weightings in each fund are as follows: SIZE (KMB, SO, GIS), MTUM (PFE, JNJ, WMT), and VLUE (XOM, CVX, JPM), so largely very familiar equity names at least in the top portion of the index weightings. We will revisit these ETFs in several quarters as they lengthen their live performance tenures, and see if RIA and/or institutional assets begin to gravitate toward such strategies.

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

Street One Financial is an educational/research firm utilizing the Broker Dealer services of GWM Group Inc (RLCC) a FINRA registered Broker/Dealer. All trades are executed through GWM Group (RLCC) and cleared by Fidelity (NFS)DTC number 0226. Street One Financial LLC makes available products and services offered by GWM Group Inc., a registered broker-dealer and Member Securities Investor Protection Corporation (SIPC), Investing in securities involves risks, and there is always the potential of losing money when you invest in securities.