Market Overview

An Active Take On Multifactor Investing

An Active Take On Multifactor Investing

Finding multifactor exchange traded funds is not difficult, but the newly minted and actively managed BlackRock U.S. Equity Factor Rotation ETF (NYSE: DYNF) is looking to breathe new life into a crowded ETF field.

What Happened

DYNF debuted last week. The new ETF “seeks to outperform the investment results of the large- and mid-capitalization U.S. equity markets by providing diversified and tactical exposure to style factors via a factor rotation model,” according to iShares.

DYNF selects stocks based on reward factors, which it defines as financially healthy firms (quality), inexpensive stocks (value), smaller companies (size), lower volatility stocks (minimum volatility) and trending stocks (momentum).

Why It's Important

BlackRock is one of the largest issuers of factor ETFs, with a suite that includes well-known funds such as the iShares Edge MSCI USA Quality Factor ETF (CBOE: QUAL) and the iShares Edge MSCI USA Momentum Factor ETF (CBOE: MTUM).

“Investors have used these products to either complement an existing core equity strategy — to reduce their risk profile or to augment their return potential — or to build their own factor rotation strategies,” Todd Rosenbluth, CFRA Research's director of ETF and mutual fund research, said in a Tuesday note.

“Yet the launch of BlackRock US Equity Factor Rotation last week provides investors with a packaged offering that will over- or underweight factor exposure based on a variety of attributes.”

The quality factor has been the leading investment factor in recent months.

“For the last few years, BlackRock reviewed signals for the factors based on the current economic landscape, valuation, dispersion and relative strength,” Rosenbluth said.

“At the end of February, the quality factor was most favored as the economic environment of moderating, yet a robust level of growth, was deemed supportive of this more defensive factor while quality's relative strength improved. Meanwhile the factor's valuation appears moderately rich, but not extreme, according to BlackRock.”

What's Next

DYNF is slightly overweight the technology and health care sectors relative to its benchmark, the 80% MSCI USA Indx/20% MSCI USA Min Vol(USD) Indx. The new ETF is modestly underweight financial stocks.

DYNF charges just 0.3 percent per year, or $30 on a $10,000 investment, which is favorable among actively managed equity ETFs. That could be a selling point for advisers and investors considering multifactor strategies.

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