Comparing the year-long performance of a series of multi-factor indexes from FTSE Russell to their parent indexes offers valuable insight for global equity investors.
FTSE Russell introduced a new series of multi-factor indexes in July 2015 as tools to help market participants measure the performance of high quality large and mid cap stocks in various global regions exhibiting relatively low volatility and high dividend yields. Index constituents are selected from the FTSE parent index and weighted based on target factor characteristics, with individual index constituents capped at 5% quarterly to avoid excessive concentration.
O’Shares Investments, led by Kevin O’Leary, has introduced a suite of exchange traded funds (ETFs) based on these indexes in the last year.
In the one year period ended July 29, 2016, as shown in the graph below:
- The FTSE USA Qual/Vol/Yield 5% Capped Factor Index has risen 16.5% relative to a 5% rise for its parent index, the FTSE USA Index.
- The FTSE Developed Europe Qual/Vol/Yield 5% Capped Factor Index has declined 4% relative to a 9.5% decline for its parent index, the FTSE Developed Europe Index.
- The FTSE Developed Asia Pacific Qual/Vol/Yield 5% Capped Factor index has risen 8.4% relative to a 0.2% decline for its parent index, the FTSE Developed Asia Pacific Index.
Brad Zucker, Senior Product Manager, FTSE Russell:
“Smart beta indexes are gaining in popularity as important tools for pursuing a wide range of index objectives, notably return enhancement, risk management, income generation and diversification. Our Qual/Vol/Yield indexes focus on selecting companies that distribute above-average yields. Our analysis continues to show that combining multiple factors can help market participants gain targeted exposures to meet their unique objectives.”
Kevin O’Leary, Chairman of O’Shares, “Shark Tank” cast member and CNBC contributor:
“Comparing performance of FTSE Russell’s Qual/Vol/Yield factor indexes to the performance of their parent indexes helps provide insight into the effects of selecting high quality, low volatility stocks that pay consistent dividends. Multi-factor indexes like this which include stocks with specific characteristics are an important and innovative new tool for examining markets and creating investable products.”
For a deeper dive into multi-factor smart beta indexes from FTSE Russell, go to the FTSE Russell website.
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