Global X launches mean reversion strategy ETF
ETF provider Global X Funds has launched the Global X Adaptive US Factor ETF.
The fund will track the Adaptive Wealth Strategies US Factor Index, which seeks to navigate various market conditions by dynamically allocating to sub-indexes representing three academically-backed factors: value, momentum, and minimum volatility. Each sub-index consists of 100 US mid and large cap stocks that represent a particular factor.
The index was created by German based index provider Solactive together with Adaptive Wealth Strategies, a division of Carroll Financial Associates, based on their existing strategy.
Timo Pfeiffer (pictured), Head of Research at Solactive, says: “The Adaptive Wealth Strategy is a very innovative multi-factor model that combines different sub-strategies such as Minimum Downside Volatility - focusing on negative returns only - in one model. It is great to see this concept being put into an index format and made investable for US clients.”
The index adjusts its factor exposures on a quarterly basis based on a mean-reversion methodology that seeks to access underperforming factors. At any given time, the index accesses two factors, equally weighted, or all three factors with a weighting of 40 per cent-40 per cent-20 per cent, underweight or eliminating the most recent outperforming factor to protect against potential downside and manage risk more effectively. In rotating its weightings to underperforming factors, the index is designed to potentially mitigate downside risks while attempting to generate outperformance versus cap-weighted benchmarks over the long run.
"The lesson that we've learned keenly over the last year has been that market environments can change rapidly, leaving investors seeking dynamic strategies that can adjust to a changing landscape," says Jay Jacobs, Senior Vice President and Head of Research and Strategy at Global X Funds. "In collaborating with Carroll Financial on AUSF, we're excited to bring their client-first approach to market with a product that aims to help investors navigate uncertain markets."
"We recognised that we could improve our adaptive factor strategy by combining minimum volatility, value, and momentum in one index," says Kristopher Carroll, Chief Investment Officer at Carroll Financial Associates, which runs Adaptive Wealth Strategies. "We have utilised a strategy of combining these three separate factors in private portfolios for many years, and are excited to now house it in one index, tracked by a single ETF. We are excited to provide this index to Global X so that it can be wrapped in an efficient structure and brought out to the broader market."