Amundi has launched the Amundi European Equity Multi Factor Market Neutral ETF (MKTN FP) on Euronext Paris, providing a means for investors to gain access to the long-term potential of factor risk premia without being exposed to the direction of European equity markets.
Fannie Wurtz, managing director at Amundi ETF, indexing & smart beta.
Fannie Wurtz, managing director at Amundi ETF, indexing & smart beta, commented: “In today’s low yield environment, investors are on the lookout for new ways to generate return and diversify their portfolios.
“We’re proud to be the first in Europe to offer a cost-efficient all-in-one European equity multi-factor market-neutral UCITS ETF. This new ETF shows our ongoing determination to give investors transparent and effective investment solutions.”
The fund tracks the iStoxx Europe Multi-Factor Market Neutral Strategy Index, which replicates a long position in the iStoxx Europe Multi Factor Strategy Index and a short position in the Stoxx Europe 600 Futures Roll EUR Excess Return Index to achieve a market neutral stance.
The strategy seeks to achieve exposure to beta risk of close to zero, thereby purely capturing the relative performance of a multi-factor equity approach – consisting of six factors (carry, low risk, momentum, size, value and quality) – compared to the broad market. Such an approach may still generate positive returns in falling equity markets as long as the multi-factor index experiences a more moderate decline compared to the broad market. Similarly, the strategy may produce a loss in upwards-trending markets if the multi-factor index underperforms the broad market index.
This second scenario has been evident in the performance of the fund’s underlying index year-to-date – as of the end of October 2017, the index has fallen 2.9% while the Stoxx Europe 600 Index gained 12.7%.
While the implementation of the index’s strategy is reviewed weekly to ensure it is meeting its required objective, some strategists may question the efficiency of the process. Given that the short position includes the entire market, this will undoubtedly result in both long and short exposure to certain stocks in the portfolio, leading to a potentially sub-optimal use of capital.
[pullquote]”Amundi’s multi-factor market neutral ETF is a welcome addition to the universe of factor-related products”
– Nicolas Rabener, Founder & MD, FactorResearch[/pullquote]Nicolas Rabener, Founder and Managing Director at independent research house FactorResearch, commented: “Amundi’s multi-factor market neutral ETF is a welcome addition to the universe of factor-related products. Institutional investors can use the ETF to harvest factor returns from European equities in a transparent and cost-efficient manner.
“Having said this, investors may be cautious given that the short portfolio is replicated with an index, which is a significant difference to empirical research where stocks are used in the short portfolio construction and is what investors utilise for asset allocation decisions. We expect similar product launches in the near future, which will disrupt the hedge fund industry in a similar way to how ETFs have disrupted the mutual fund industry.”
The fund has a total expense ratio (TER) of 0.55% and is scheduled to be rolled out across other major European stock exchanges in the coming weeks.
The packaging of such a market-neutral strategy – once available only to wealthy hedge fund investors – within an ETF structure, is indicative of the strong expansion of the ETF industry in general and the growth in the number of strategies available to investors.
Amundi, however, is not the first to offer a hedge fund strategy in an accessible ETF format.
UBS offers a range of hedge fund ETFs including the UBS HFRX Global Hedge Fund Index UCITS ETF (HFUSAS SW), which provides exposure to a broad range of hedge fund strategies through a single ETF ticker. The ETF tracks the HFRX Global Hedge Fund Index, which is designed to be representative of the overall composition of the hedge fund universe. Harnessing the Hedge Fund Research (HFR) database, the index is comprised of all eligible hedge fund strategies, including, but not limited to: convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage, and relative value arbitrage. The strategies are asset weighted based on the distribution of assets in the hedge fund industry. The fund’s TER is 0.34%.