The Invesco Russell 2000 Dynamic Multifactor ETF (OMFS) made its debut on 11/08/2017, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - Small Cap Blend category of the market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
Because the fund has amassed over $210.64 million, this makes it one of the average sized ETFs in the Style Box - Small Cap Blend. OMFS is managed by Invesco. This particular fund, before fees and expenses, seeks to match the performance of the RUSSELL 2000 INVESCO DYNAMIC MLTIFCTR ID.
The Russell 2000 Invesco Dynamic Multifactor Index is constructed using a rules-based methodology by selecting equity securities from the Russell 2000 Index, which measures the performance of 2,000 small-capitalization companies in the United States.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.39% for this ETF, which makes it on par with most peer products in the space.
OMFS's 12-month trailing dividend yield is 1.55%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
For OMFS, it has heaviest allocation in the Financials sector --about 27.50% of the portfolio --while Industrials and Information Technology round out the top three.
Taking into account individual holdings, Murphy Usa Inc (MUSA) accounts for about 1.67% of the fund's total assets, followed by Kinsale Capital Group Inc (KNSL) and Exlservice Holdings Inc (EXLS).
OMFS's top 10 holdings account for about 10.19% of its total assets under management.
Performance and Risk
So far this year, OMFS has lost about -13.22%, and is down about -12.39% in the last one year (as of 11/30/2022). During this past 52-week period, the fund has traded between $31.60 and $42.48.
The ETF has a beta of 1.10 and standard deviation of 32.95% for the trailing three-year period. With about 762 holdings, it effectively diversifies company-specific risk.
Invesco Russell 2000 Dynamic Multifactor ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Russell 2000 ETF (IWM) tracks Russell 2000 Index and the iShares Core S&P SmallCap ETF (IJR) tracks S&P SmallCap 600 Index. IShares Russell 2000 ETF has $55.04 billion in assets, iShares Core S&P SmallCap ETF has $67.90 billion. IWM has an expense ratio of 0.19% and IJR charges 0.06%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Small Cap Blend.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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