Scalable Capital has expanded its investment universe with four factor ETFs.
The new ETFs cover the asset classes equities Europe and equities USA. They rely on the factors "Value" and "Momentum" and come from the provider iShares.
Factor investing improves the long-term risk-return profile of investing. Scalable Capital's overall investment strategy remains unaffected by the addition of factor ETFs.
Erik Podzuweit, managing director and co-founder of Scalable Capital said: "We include the ETFs in our investment universe because factor indices have a better risk/reward ratio over the long term than traditional indices, which are weighted by market capitalization. Especially the factors value and momentum perform better in many studies than the broad market. With the introduction of the factor ETFs we want to use this knowledge for our customer portfolios."
Factor ETFs are not based on the "classic" free float market capitalistion (free float). Rather, they depict indices that are based on quantitative ratios and reflect the respective factor. Thus, in the value factor, valuation ratios such as the price-book value and the price-earnings ratio - ie the value of a share - decide on the index composition. The momentum factor is based on the share price performance of the past few months.
Important factors that are considered for selection include diversification properties, strong empirical evidence for the relevance and mode of action of a factor, and low costs. Scalable Capital's new factor ETFs meet these stringent selection criteria.
The four new value and momentum securities are not the first factor ETFs in Scalable Capital's investment universe. Since October 2018, the company has been investing in the asset classes "European equities" and "US equities" on small-cap ETFs, also known as small capitalisation stocks.