High. This portfolio invests in BlackRock's ETFs that use smart beta factor strategies, which are derived from statistical mining of historical data and may not be predictive of future performance.
You want to employ a long-term investment that takes advantage of smart beta strategies.
This portfolio takes advantage of smart beta strategies using low-cost BlackRock iShares ETFs. These Smart Beta ETFs employ factor strategies that screen for persistent drivers of return, similar to strategies that are employed by institutional investors. The factor strategies employed in this portfolio are:
Value Strategies: Value strategies screen for cheap stocks relative to fundamentals. Value stocks tend to perform well in the early stages of a business cycle - for example, during the expansionary period from April 2003 to October 2007.
Quality Strategies: Quality strategies screen for companies with healthy balance sheets. Quality investing invests in companies with healthier balance sheets that make better use of their capital. These companies have more stable operations and have outperformed their less efficient peers.
Momentum Strategies: Momentum strategies screen for stocks that are trending up. Momentum investing is based on the concept that winning stocks continue winning and losers tend to continue to lose. The strategy tends to work best in upward or downward trending markets, for example during the risk on, risk off period from May 2011 to May 2012. Momentum investing can be more volatile, but takes advantage of behavioral biases of investors that tend to overreact to their own success, causing a domino effect.
Minimum Volatility Strategies: Minimum volatility strategies screen for equities that deliver market-like exposure with below market risk. This style factor has historically provided downside protection by favoring stocks with more stable prices. For this Vest, we have incorporated minimum volatility ETFs in the U.S. equity market, other developed markets, and the broader emerging markets.
Size Strategies: Size strategies look to invest in stocks with smaller capitalisations relative to larger counterparts. Investing in smaller market cap equities may be more risky, as they are more exposed to business cycle contractions and are more illiquid. Historically, however, smaller size companies have delivered higher returns than large companies because they are more sensitive to market moves. Investing in smaller size companies has tended to perform well in the early stages of an economic upswing - for example, the recovery period following the subprime crisis ending in 2009.
For this portfolio, we have identified the below companies:
| Company | Description |
|---|---|
| iShares MSCI Emerging Markets Min Vol Factor ETF (EEMV) | This fund provides exposure to emerging market stocks that have historically exhibited lower volatility, aiming to reduce potential losses during market downturns. |
| iShares MSCI EAFE Min Vol Factor ETF (EFAV) | This exchange-traded fund focuses on stocks from developed international markets that have demonstrated lower price fluctuations, offering a potentially more stable way to invest overseas. |
| iShares MSCI USA Momentum Factor ETF (MTUM) | This fund targets large and mid-capitalization U.S. stocks that have been exhibiting strong upward price trends, seeking to capture returns from ongoing positive market momentum. |
| iShares MSCI USA Quality Factor ETF (QUAL) | This exchange-traded fund invests in large and mid-cap U.S. companies that demonstrate strong financial health, such as consistent earnings, high profitability, and low debt. |
| iShares MSCI USA Size Factor ETF (SIZE) | This fund specifically targets U.S. mid-cap stocks, which historically have offered a unique blend of growth potential and relative stability compared to larger or smaller companies. |
| iShares MSCI USA Min Vol Factor ETF (USMV) | This ETF is designed to provide exposure to U.S. stocks with lower volatility characteristics compared to the broader market, aiming for more stable portfolio returns. |
| iShares MSCI USA Value Factor ETF (VLUE) | This fund focuses on large and mid-capitalization U.S. stocks that appear to be trading at a discount relative to their underlying fundamental financial value. |