Principal unveils suite of active multi-factor ETFs

Jun 1st, 2021 | By | Category: Equities

Principal Financial has introduced a suite of three actively managed multi-factor equity ETFs on Cboe BZX.

Principal unveils suite of active multi-factor ETFs

Principal unveils suite of active multi-factor ETFs

Styled as ‘Adaptive’, the funds target different blends of quality, momentum, value, and low-volatility risk premia according to when these factors are expected to outperform the market.

Two of the funds invest in US stocks while the third covers developed market stocks outside of the US.

They are the Principal US Large-Cap Adaptive Multi-Factor ETF (PLRG US), which comes with an expense ratio of 0.15%; the Principal US Small-Cap Adaptive Multi-Factor ETF (PLTL US), 0.19%; and the Principal International Adaptive Multi-Factor ETF (PXUS US), 0.24%.

The funds have collectively been seeded with approximately $20 million in assets.

Investment approach

The ETFs select their constituents from the S&P 500, S&P 600, or MSCI World ex-USA benchmark indices.

The process involves using a proprietary model to determine the current level of risk in the market, defined as either “lower”, “higher and increasing”, or “higher and decreasing”.

During “higher and decreasing” risk environments, the funds will closely mirror the constituent weights of their benchmarks; however, in other risk environments, they will tilt towards certain factors in a bid to outperform.

In “lower” risk environments, the ETFs will allocate more to firms with value, quality, and momentum characteristics, while de-emphasizing lower volatility stocks. In “higher and increasing” risk environments, they will allocate more to firms with lower volatility, quality, and momentum characteristics while de-emphasizing value stocks.

The level of market risk is determined on a weekly basis. In the event that a certain risk environment persists over an extended period, the portfolios will generally be rebalanced on a semi-annual basis.

“We remain focused in our pursuit of investment solutions that will help clients optimize returns and mitigate risk. By utilizing a rules-based investing process, the Principal Adaptive Multi-Factor ETFs aim to consistently outperform traditional market cap-weighted indexes during periods of low and high market volatility,” said Matthew Raynor, managing director of the US Strategic Client Group for Principal Global Investors.

“These ETFs assess market risk measurements like the VIX, as well as proprietary risk screens, and seek to actively allocate to the most appropriate factors based on these measurements.”

Principal also offers a suite of passively managed multi-factor ETFs that provide consistent exposure to value, quality, and momentum factors from within universes of US large-caps, US small-caps, and global developed ex-US stocks. The Principal US Mega-Cap ETF (USMC US) and Principal US Small-Cap Multi-Factor ETF (PSC US) house $1.8bn and $1.6bn in assets, respectively, while the Principal International Multi-Factor ETF (PDEV US) has $80m.

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