Elston Consulting has launched the Elston World Equity Factor Equal Weight Index (ticker ELSFEW).
The index represents an equal weight allocation to six London-listed world equity factor-enhanced ETFs from BlackRock’s iShares:including world equity exposures for six different factors: Value, Quality, Size, Momentum, Minimum Volatility and Yield.
The index is available for research purposes and also for potential fund manufacturing by asset managers looking to enter the systematic investing space as a half-way house between traditional active and traditional (market-cap) passive.
An active factor allocation strategy is one of the fund innovations featured on Elston’s Research & Development Wish List, the firm writes.
The fund format is more readily accessible than ETFs to the approximately GBP900 billion AUM platform-based UK IFA market – a fact lost on many US-based ETF issuers who have been waiting over a decade for ETF connectivity on UK platforms to be resolved to unlock that market. Elston was an early pioneer of “fund of ETFs” to resolve this, with its first fund-of-ETFs launched in 2020.
The new factor index is a sibling index to the Elston World Equity Sector Equal Weight Index launched in 2022 (ticker ELSWES) which was built with London-listed sector ETFs from SPDR. This sector equal weight index is used as a benchmark for an active sector allocation fund launched by Foster Denovo in 2023 and managed by State Street Global Advisers.
Henry Cobbe, Founder & Head of Research at Elston Consulting, says: “Many UK advisers are aware of the Fama-French three factor model, and see that as a so-called “evidence-based approach”. The reality is that there are more discernible factors beyond the Fama-French model alone. So, if advisers are looking at the evidence, they need to consider all the evidence. Whilst some factors like Value may show strong performance over the very long run, the performance gap between best (Momentum) and worst (Value) factors over the last five and 10 year performance has been huge. Active factor selection, and “tilting” to prevailing market regimes is key. A buy and hold approach is really unhelpful if you’ve “set and forget” the wrong factor for a decade or so.”
Hoshang Daroga, Investment Director at Elston Consulting, says: “The concentration issues for traditional world equity indices are well documented. We see active factor and sector selection as having a key role to play in tilting portfolios to different styles and exposures in different market regimes, and for style diversification purposes.
The challenge is how to evaluate those factor and sector selections given market-cap weighted indices have high concentrations and a resulting inherent bias. We built the World Equity Factor and Sector Equal Weight indices to help asset allocators evaluate to what extent their active factor or sector selections have added value against a simple equal weight approach.”
Scott Adams, Head of Adviser Relations at Elston Consulting, says: “Elston was one of the early pioneers of index-of-ETFs in 2014 and fund-of-ETFs in 2020. A rules-based systematic index-of-ETFs helps asset allocators readily evaluate strategies in real time via their preferred data vendor or analytics provider.”
