The Rising Importance of Factor Investments, Smart Beta ETFs
This article was originally published on ETFTrends.com.
Now that investors have grown acquainted with traditional beta-index strategies, more are looking into smart beta or factor-based ETFs to diversify their portfolios in changing market conditions.
"In the last year or so, the tune has changed a little bit.... Volatility has increased. Macro uncertainties - you know, globally and potentially here in the U.S - changes investors' mindsets, changes clients mindsets. So, they are much more open today than they were even a year ago to consider a multi-factor approach," Matt Straut, Head of RIA Group at OppenheimerFunds, said at the Charles Schwab IMPACT 2018 conference.
Among OppenheimerFunds strategies, investors can look to multi-factor, smart beta tools like the Oppenheimer Russell 1000 Dynamic Multifactor ETF (Cboe: OMFL) and the Oppenheimer Russell 2000 Dynamic Multifactor ETF (Cboe: OMFS) .
OMFL and OMFS select companies through exposure to a subset of the low volatility, momentum, quality, size and value factors. Investors may combine the various factors to gain an easy-to-use and quick way to access a diversified market position. This combined factor or multi-factor, smart beta approach may be a good core position for any equity portfolio.
These types of factor-based investments help investors steer away from the potential risks associated with a traditional market-cap weighted fund that can grow top heavy, especially in a prolonged bullish environment.
Along with the dynamic multi-factor ETFs, OppenheimerFunds also offers single-factor based strategies to help investors garner targeted market exposures, including the Oppenheimer Russell 1000 Size Factor ETF (Cboe: OSIZ) , Oppenheimer Russell 1000 Value Factor ETF (Cboe: OVLU) , Oppenheimer Russell 1000 Low Volatility Factor ETF (Cboe: OVOL) and Oppenheimer Russell 1000 Yield Factor ETF (Cboe: OYLD) .
Straut argued that these factor-based strategies reminiscent of traditional actively managed investment strategies can help financial advisors simplify their advisory businesses and reduce the amount of work they have to put in to managing client money. Instead of meticulously monitoring investments, an advisors can rely on the rules-based, decision-making process found in the indexing methodologies of smart beta ETFs to diversify a portfolio and potentially enhance long-term returns.
"At the core it is a combination of active and factors. It is rotational. It is dynamic in nature. And by its very nature, we take the decision off the advisors' plate - somewhat. Whether they use it as a core or a satellite is at their behest, but we're taking that decision and sharing that decision," Straut added.
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