When you examine FCTR's rotating strategy, it becomes clear that the fund's attempt to adapt to market changes is intriguing but raises some concerns. Despite its focus on momentum, value, quality, and low volatility, it hasn't consistently outperformed the S&P 500. You might wonder if the high turnover and costs are worth it. As market cycles seem to repeat, the question remains: can this approach truly navigate the complexities ahead?
If you're looking for a dynamic investment approach, FCTR's Rotating Strategy might catch your interest. Launched on July 25, 2018, the First Trust Lunt U.S. Factor Rotation ETF (FCTR) employs an adaptive factor rotation strategy that shifts among four key factors: momentum, value, quality, and low volatility. By tracking the Lunt Capital Large Cap Factor Rotation Index, FCTR offers a structured method to capitalize on varying market conditions.
Every month, FCTR evaluates and adjusts its factor allocations, leading to high turnover in its portfolio of 166 stocks selected from the Nasdaq US 500 Large Cap Index. This monthly evaluation means that the ETF is always aiming to rank stocks by their factor attributes, selecting the top and bottom 50 for each factor.
While this dynamic allocation can potentially enhance performance by targeting the best-performing factors, it also comes with challenges. High turnover rates can increase costs, and the ETF's active management has drawn criticism for being expensive.
Since its inception, FCTR's returns haven't exactly wowed investors, often lagging behind the S&P 500 and an equal-weight portfolio of single-factor ETFs. This underperformance may lead you to question whether the strategy is worth pursuing. The risks associated with its dynamic nature can create a rollercoaster experience for investors, especially if they panic during periods of underperformance and abandon the strategy altogether. Emotional investing can derail potential future gains, which is crucial to keep in mind. Paying attention to various sources of information can provide insights into the underlying factors driving market performance.
However, FCTR's multi-factor approach does offer a way to mitigate the risks associated with single-factor underperformance. Factors can behave differently over time, making rotation a potentially beneficial strategy.
Still, you'll need to stay vigilant about market conditions, as the strategy's success hinges on accurately identifying favorable environments for each factor.
If you're considering alternatives, static multi-factor strategies or single-factor ETFs may serve as viable options. They carry less risk associated with the frequent changes FCTR imposes.
Ultimately, the decision to invest in FCTR's Rotating Strategy should come down to your risk tolerance and investment goals. It's vital to weigh the benefits of adaptability against the potential for high costs and inconsistent returns. As with any investment, thorough research and a clear understanding of your objectives will guide you in making informed choices.
