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Index IDEA: O’Shares and FTSE Russell examine value of multi-factor index approaches

New research from FTSE Russell and O’Shares ETF Investments, led by ABC, “Shark Tank” panelist member and CNBC contributor Kevin O’Leary, reveals that a multi-factor index tilting toward constituents exhibiting higher quality, lower volatility and higher dividend yield characteristics relative to its market cap weighted index has achieved an average annualized index return nearly double that of this index since September 2000 with lower relative index volatility.

The FTSE Developed ex-US Qual/Vol/Yield Factor 5% Capped Index, which selects constituents from the FTSE Developed ex-US Index and weights them based on target factor characteristics of quality, low volatility and yield, has shown an annualized index return of 8.2% from September 30, 2000 through March 31, 2017 with a 14.5% annualized volatility based on hypothetical historical index returns. This compares to a 4.4% index return and 17.1% volatility for the FTSE Developed ex-US Index for the same period.

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

“The performance of the FTSE Developed ex-US Qual/Vol/Yield Index is a great illustration of the effects of selecting high quality, low volatility stocks that can pay dividends over time. Multi-factor indexes like this which include stocks with these specific characteristics are an important and innovative new tool for investors seeking conservative, long-term investable index solutions.”

Yvette Murphy, senior product manager, FTSE Russell:

“Our index research indicates that stocks exhibiting lower volatility, higher quality and higher dividend yields have performed better than their broad benchmark over time. We attribute this to a number of factors, but most notably our research indicates that, in periods of market turbulence, indexes comprised of stocks with this combination of traditionally defensive characteristics have declined less than the broad market. Through compounding and drawdown mitigation during market pullbacks, indexes reflecting these characteristics have performed better over the longer term.”

As part of its study, FTSE Russell examined three periods of heightened market stress in the last decade; the 2008-2009 Global Financial Crisis, the 2010-2012 Eurozone Debt Crisis and the 2015-2016 Chinese market sell off. In all three examples, the multi-factor index from FTSE Russell exhibited a smaller drawdown and a shorter recovery time.


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Views expressed by Yvette Murphy of FTSE Russell and Kevin O’Leary of O’Shares Investments  are as of April 11th 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 US Indexes 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. 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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