Hartford Funds has launched two low volatility multifactor exchange-traded funds, the Hartford Multifactor Low Volatility US Equity ETF (Bats: LVUS) and Hartford Multifactor Low Volatility International Equity ETF (Bats: LVIN). Both multifactor ETFs are designed to provide returns in line with broad market benchmarks while reducing portfolio volatility over a complete market cycle.
LVUS and LVIN seek to enhance portfolio returns through a market cycle with up to 25% less volatility versus their capitalization-weighted universes.
“These strategies arrive at a time when market volatility is top-of-mind for investors,” said Darek Wojnar, head of ETFs at Hartford Funds. “They were designed to reduce volatility for investors pursuing long-term growth potential while introducing positive exposure to other potentially return-enhancing factors such as value, momentum, quality and size.”
The ETFs track indices created in house, one focused on US equities and the other on developed (ex-US) and emerging markets, that are designed to balance risk across sectors and comprise securities exhibiting low volatility characteristics while maintaining positive exposure to other potential return-enhancing factors.
The underlying methodology attempts to address many of the unintended risks found in traditional capitalization-weighted and single-factor indices. This is achieved by selecting equities exhibiting low volatility and constructing the portfolio in a way that is also designed to improve overall exposure to value, momentum and quality factors.
The indices seek to provide improved returns through a market cycle with up to 25% less volatility versus their capitalization-weighted universes. The rules-based, proprietary methodology employs a multi-layered risk-controlled approach that seeks to improve diversification, balance risk across sectors by utilizing expected tail loss estimations, and reduce volatility through security selection and portfolio composition. The methodology utilizes an optimization process to help achieve the desired composition and targeted characteristics.
The US-focused index has 239 constituents with significant exposure to the industrials (17.6%), consumer discretionary (17.1%), health care (9.6%), consumer staples (8.8%) and information technology (7.9%) sectors.
The international-focused index has 352 constituents with top country exposures to Japan (15.0%), the UK (11.6%), Canada (8.8%), China (6.6%) and South Korea (5.8%). Industrials also makes up the largest sector exposure with 16.8%, followed by consumer discretionary (12.4%), health care (10.3%) and materials (9.5%).
LVUS and LVIN have total expense ratios of 0.29% and 0.39% respectively.