Multifactor exchange traded funds are a fast-growing corner of the broader ETF industry, and many lack the five- and 10-year track records many investors and fund analysts deem important.
In recent years, some advisors and investors have not waited for new ETFs to gain appropriate “seasoning” before jumping in.
Of the more than 1,300 ETFs in CFRA Research's coverage universe, 31 percent have come to market in the past three years, Todd Rosenbluth, the firm's director of ETF and mutual fund research, said in a Monday note. That figure includes some multifactor ETFs.
“Based on fund flows, investors are not waiting for an ETF to hit an anniversary before investing, as many of these young products have passed the $100-million milestone,” Rosenbluth said.
A Popular Multifactor ETF
The JPMorgan Diversified Return U.S. Equity ETF (NYSE: JPUS) does not turn 3 until September, but the product has quickly proven successful — as highlighted by $491.1 million in assets under management as of March 9.
JPUS tracks the Russell 1000 Diversified Factor Index. Factors emphasized in that benchmark include momentum, quality and value. The ETF not only aims to capture bull market upside, “but also aims to minimize the downside with a risk-weighted approach to portfolio construction,” Rosenbluth said.
Consumer staples is the fund's largest sector allocation at 17.2 percent, followed by health care at 15.2 percent. Consumer discretionary and technology names each account for more than 13 percent of the ETF's weight. JPUS is up 15 percent over the past year.
The Xtrackers Russell 1000 Comprehensive Factor ETF (NYSE: DEUS) is two months younger than the aforementioned JPUS. DEUS tracks the Russell 1000 Comprehensive Factor Index, which provides exposure to five investment factors — low volatility, momentum, quality, size and value. DEUS has nearly $154.4 million in assets, indicating it has attracted a following among advisors and investors.
DEUS holds over 800 stocks, with nearly half its combined weight allocated to consumer discretionary, industrial and technology names. The multifactor ETF is up 15.5 percent over the past year.
CFRA has an Overweight rating on DEUS and a Marketweight rating on JPUS.
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