More than 200 new exchange traded funds have been launched in the US this year and if this week is any indication, that pace is not going to slow anytime soon.
Among those rookie ETFs are scores of multi-factor funds, or those ETFs that use multiple investment factors, such as low volatility, momentum, quality and value, in an effort to drive returns. Smart or strategic beta exchange-traded funds are hot. One of the growing sub-trends within the broader strategic beta movement is the burgeoning population of multi-factor ETFs.
Endorsers of the multifactor make reasonable, if not simple claims. Namely, they are apt to say there are times one factor outperforms another, and rather than trying to isolate the best factor in a given period, investors are better off embracing themulti-factor approach.
The O'Shares FTSE US Quality Dividend ETF (NYSE:OUSA) and Lattice US Equity Strategy ETF (NYSE:ROUS) are two new ETFs that earn a number of favorable ranking inputs from S&P Capital IQ. They are both multi-factor-based and focus primarily on U.S. large caps, but the assets are allocated quite differently. We think they are below the radar for investors who may be waiting, unnecessarily in our opinion, for a longer track record, said S&P Capital IQ in a note out Wednesday.
The O'Shares FTSE US Quality Dividend ETF debuted backed by star power few new ETFs have the advantage of. O'Shares is the ETF issuer founded by Shark Tank star Kevin O'Leary and OUSA is the first O'Shares ETF. The firm now issues five ETFs.
Off to a solid start with $27.1 million in assets under management, OUSA emphasizes quality, large-cap dividend payers with a penchant for low volatility. Top 10 holdings in the new ETF include Exxon Mobil Corporation(NYSE:XOM), Johnson & Johnson Inc (NYSE:JNJ) and PepsiCo Inc. (NYSE:PEP). OUSA's high quality and low volatility requirements are designed to reduce exposure to high dividend equities that have experienced large price declines, as may occur with some dividend investing strategies, according to O'Shares.
OUSA has a 0.48% expense ratio and trades with a favorably low $0.03 bid/ask spread. OUSA launched in July 2015 and ranks favorably to us for its holdings of stocks with above-average S&P Capital IQ Quality Rankings and Risk Assessments, said S&P Capital IQ.
The Lattice US Equity Strategy ETF, which debuted in February and now has $22.7 million in assets, looks to go deep into the large-cap universe to find stocks with favorable return profiles relative to mega-caps. ROUS emphasizes the momentum, quality and value factors, according to Lattice.
ROUS is diversified across its more than 300 holdings as none garner a weight in excess of 1.38 percent and the ETF's top 10 holdings combine for just 10.4 percent of the fund's weight. That group includes Valero Energy Corp. (NYSE:VLO), Phillips 66 (NYSE:PSX) and Aetna Inc. (NYSE:AET).
ROUS holds more than 300 securities with exposure highest in financials (21% of assets), information technology (15%) and consumer discretionary (15%). The ETF ranks favorably for S&P Capital IQ STARS, our qualitative valuation tool, adds S&P Capital IQ.
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