Issuers of exchange traded funds continue to test the waters with large-cap, multifactor strategies. The newest addition to the group is the First Trust Lunt U.S. Factor Rotation ETF FCTR, which debuted last week.
The latest ETF from Illinois-based First Trust, one of the largest issuers of smart beta funds, follows the Lunt Capital Large Cap Factor Rotation Index.
What Happened
FCTR's underlying index focuses on the momentum, value, volatility and quality factors. Using the Lunt Factor Allocation Methodology, the index rotates among those factors as they come into favor.
“In recent years, the investment industry has highlighted the value of single and multifactor investment solutions. The fund embraces a multifactor approach with the important innovation of applying factor rotation to momentum, quality, value and volatility,” said Lunt President John Lunt.
Why It's Important
Advisors and investors have been embracing multifactor strategies in part because factor timing is difficult. Historical data confirm that different factors lead from year to year, and there are no guarantees a winning factor from one year will repeat that success the following year.
Multifactor ETFs ease the factor-timing burden, but FCTR enhances that effort by identifying when the aforementioned factors are falling out of favor and when they are coming back into style. The new ETF came to market with about 170 holdings.
“Although single-factor investing offers the ability to hone in on a desirable characteristic of a stock, a multifactor approach may provide the added benefit of diversification and provide a solution that seeks to enhance returns over time,” according to First Trust.
What's Next
None of FCTR's holdings exceed weights of 1.90 percent. Top 10 holdings include some controversial fare, such as General Electric Co. GE, Tesla, Inc. TSLA and Snap Inc. SNAP.
FCTR allocates over a third of its combined weight to the technology and health care sectors, possibly a sign the fund is tilting toward momentum and quality stocks. The energy, consumer discretionary and real estate sectors also combine for over a third of FCTR's roster.
The new ETF charges 0.65 percent per year, or $65 on a $10,000 investment.
Related Links:
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
