PIMCO has launched three smart beta equity ETFs providing investors with diversified exposure to multiple factors, including value, quality, low volatility, momentum and size. Research shows that historically the five equity factors have outperformed the broader equity market over the long term.
The ETFs provide exposure to multiple factors, including value, quality, low volatility, momentum and size.
The ETFs track Research Affiliates’ RAFI Dynamic Multi-Factor Indices and offer access to US, international or emerging market stocks.
Companies are initially screened by metrics such as sales, cash flow, dividends and buybacks, and book value. While the majority of stocks (85%) make it through this screening process, this initial stage allows for the elimination of firms which score very poorly on fundamental measures.
Companies are then ranked by their score for each of the five above factors with the top quarter selected for inclusion into its own factor-specific portfolio (the top half are selected for the momentum portfolio) with weights determined by their factor scores. The factor portfolios are joined together in a modified equal-weighted final index. The modification seeks to deemphasize the factors that are expensive compared to historical norms while emphasizing those that are undervalued, thereby introducing a buy-low, sell-high discipline in the factor investing world.
“PIMCO is excited to partner with Research Affiliates in offering the PIMCO RAFI Dynamic Multi-Factor Equity ETFs,” said Andrew Pyne, executive vice president and strategist focused on PIMCO’s equity solutions. “These ETFs help investors overcome the challenge of determining which factors to include and at what weighting. By dynamically adjusting factor allocations in an ever-changing market, PIMCO RAFI Dynamic Multi-Factor Equity ETFs offer a compelling solution for clients navigating an increasingly disparate smart beta and factor landscape.”
Rob Arnott, chairman and chief executive officer of Research Affiliates, added: “The new PIMCO RAFI Dynamic Multi-Factor ETFs marry multi-factor investing with a true smart beta strategy thereby providing two alpha engines in a single package. I’m proud to be affiliating with PIMCO to offer products that reflect these powerful insights.”
The three ETFs are:
PIMCO RAFI Dynamic Multi-Factor US Equity ETF (NYSE Arca: MFUS)
MFUS has a total expense ratio (TER) of 0.29% due to a contractual fee waiver in place until 31 October 2018. Its gross expense ratio is 0.39%.
PIMCO RAFI Dynamic Multi-Factor International Equity ETF (NYSE Arca: MFDX)
MFDX has a TER of 0.39% due to a contractual fee waiver in place until 31 October 2018. Its gross expense ratio is 0.49%. Its largest country exposures are to Japan (23.6%), the UK (15.9%), Germany (7.8%), Switzerland (6.8%) and Canada (6.8%).
PIMCO RAFI Dynamic Multi-Factor Emerging Markets Equity ETF (NYSE Arca: MFEM)
MFEM has a TER of 0.49% due to a contractual fee waiver in place until 31 October 2018. Its gross expense ratio is 0.59%. Its largest country exposures are to South Korea (19.1%), Taiwan (16.1%), China (15.8%), Brazil (10.4%) and Russia (8.0%).