Each week, I scan the ETF marketplace to identify my top ideas - one from each of 10 different segments of the market - that present opportunities you should be aware of for the coming week. This is the second half of that list.
The Smart Beta ETF Idea
Factor investing is viewed as capturing the best of two worlds. Single-factor or multi-factor ETFs provide investors with the low cost advantages of passive investing with the ability to outperform a benchmark that comes with active management. The strategy has become popular enough that even Vanguard is getting in on the action. Single factor ETFs that target ideas, such as low volatility, high dividend yield or momentum, are all over the place, but if you want an approach that searches for the best combination of the four major factors - size, value, momentum and quality - while maintaining a similar risk level to that of the parent index, a multi-factor ETF may be the way to go.
One of the biggest is the iShares Edge MSCI Multi-Factor ETF (LRGF). It's part of the same family as some of the most popular single-factor ETFs, such as the iShares Edge MSCI USA Momentum Factor ETF (MTUM). The index provider uses a quantitative model to identify companies that maximize exposure to the factors mentioned above. It charges just 0.20%, keeping it in range of some of the cheaper smart beta products available. The one downside of the fund? The index only rebalances semiannually. That means the fund could get stale quickly if the market starts to change. If you want an actively managed product that can change as conditions change, I'd recommend the Vanguard U.S. Multi-Factor ETF (VFMF).
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