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Index IDEA: Comparing a series of multi-factor indexes to their parent reveals new insight into dividend yielding stocks

Comparing the year-long performance of a series of multi-factor indexes from FTSE Russell to their parent indexes offers valuable insight for global equity investors.

FTSE Russell introduced a new series of multi-factor indexes in July 2015 as tools to help market participants measure the performance of high quality large and mid cap stocks in various global regions exhibiting relatively low volatility and high dividend yields. Index constituents are selected from the FTSE parent index and weighted based on target factor characteristics, with individual index constituents capped at 5% quarterly to avoid excessive concentration.

O’Shares Investments, led by Kevin O’Leary, has introduced a suite of exchange traded funds (ETFs) based on these indexes in the last year.

In the one year period ended July 29, 2016, as shown in the graph below:

  • The FTSE USA Qual/Vol/Yield 5% Capped Factor Index has risen 16.5% relative to a 5% rise for its parent index, the FTSE USA Index.
  • The FTSE Developed Europe Qual/Vol/Yield 5% Capped Factor Index has declined  4% relative to a 9.5% decline for its parent index, the FTSE Developed Europe Index.
  • The FTSE Developed Asia Pacific Qual/Vol/Yield 5% Capped Factor index has risen 8.4% relative to a 0.2% decline for its parent index, the FTSE Developed Asia Pacific Index.


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Brad Zucker, Senior Product Manager, FTSE Russell:

“Smart beta indexes are gaining in popularity as important tools for  pursuing a wide range of index objectives, notably return enhancement, risk management, income generation and diversification. Our Qual/Vol/Yield indexes focus on selecting companies that distribute above-average yields. Our analysis continues to show that combining multiple factors can help market participants gain targeted exposures to meet their unique objectives.”



Kevin O’Leary, Chairman of O’Shares, “Shark Tank” cast member and CNBC contributor:

“Comparing performance of FTSE Russell’s Qual/Vol/Yield factor indexes to the performance of their parent indexes helps provide insight into the effects of selecting high quality, low volatility stocks that pay consistent dividends. Multi-factor indexes like this which include stocks with specific characteristics are an important and innovative new tool for examining markets and creating investable products.” 


For a deeper dive into multi-factor smart beta indexes from FTSE Russell, go to the FTSE Russell website.


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Views expressed by Brad Zucker and Kevin O’Leary are as of August 11 and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the LSE Group.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Russell Microcap® Index or the fitness or suitability of the indexes for any particular purpose to which they might be put.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this IDEA should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

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Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back- tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.

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