Guggenheim has launched a new US equity smart beta ETF that applies a multi-factor approach to select stocks from the S&P 500 Index. The ETF will give exposure to 50 stocks from the underlying index that exhibit strong factor characteristics.

William H. Belden, managing director and head of ETF product development at Guggenheim Investments.

The Guggenheim Multi-Factor Large Cap ETF (GMFL) tracks an index developed in-house which utilises a selection process based on a composite score determined by a stock’s exposure to fundamental (value, growth and quality) and non-fundamental (momentum, short interest, volatility and liquidity) factors.

William H. Belden, head of ETF business development, Guggenheim Investments, commented: “While many multi-factor strategies favour popular factors, like value, quality or momentum, Guggenheim has advanced multi-factor investing by combing seven factors, both fundamental and non-fundamental, that seek to offer more stable performance across market cycles.”

While single factor strategies, such as value or quality, can provide enhanced performance and lower risk in specific time periods, they are susceptible to periods of underperformance when the factor falls from favour. Because timing single factors is extremely difficult, a multi-factor methodology can be a way of smoothing returns in a variety of economic cycles while still gaining exposure to the enhanced performance related to factor investing.

“Although performance in the market may be driven at times by narrow factors that work well in the short term, the strategy selects stocks based on multiple factors based on long-standing research that may provide more consistent and reliable performance,” said Belden.

The final index is comprised of the 50 stocks from the S&P 500 with the highest composite factor scores. Constituents are equally weighted and the index is rebalanced quarterly. The fund has an expense ratio of 0.25%.

As of 31 May 2017, the largest sector exposures were information technology (23%), health care (14%) and financials (14%).