Hartford Multifactor Small Cap ETF (ROSC)

Overview of Hartford Multifactor Small Cap ETF (NYSEARCA: SFYM)

Profile:

Hartford Multifactor Small Cap ETF is a passively managed exchange-traded fund (ETF) that seeks to provide investment results that, before expenses, generally correspond to the total return performance of the Solactive US Small Cap Multifactor Index. This index utilizes a quantitative methodology to select securities from the Solactive US Small Cap Index based on factors, including value, momentum, quality, and growth. The ETF invests in a diversified portfolio of small-cap U.S. stocks with a multi-factor approach aimed at capturing market inefficiencies and enhancing risk-adjusted returns.

Objective:

The primary investment goal of SFYM is to offer investors a cost-effective and convenient way to gain exposure to the small-cap segment of the US stock market while employing a multi-factor investing strategy.

Issuer:

Hartford Funds: The ETF is issued by Hartford Funds, a leading asset management company with over 50 years of experience. Hartford Funds is a subsidiary of Hartford Financial Services Group, Inc. (NYSE: HIG), a Fortune 250 financial services company with a long history and strong financial standing.

Reputation and Reliability: Hartford Funds has a strong reputation for providing high-quality investment products and services. The firm received an A+ rating from the Better Business Bureau (BBB) and holds several awards and accolades in the industry, demonstrating its commitment to responsible investing and client satisfaction.

Management: Hartford Funds employs a team of experienced portfolio managers and analysts with expertise in various investment strategies, including multi-factor investing. The team uses proprietary research and rigorous due diligence processes in developing and managing the ETF's portfolio.

Market Share:

SFYM has a relatively small market share within the small-cap ETF segment, with approximately $20 million in total assets under management. However, the fund has experienced rapid growth since its inception in 2021.

Total Net Assets:

The ETF currently has approximately $20 million in total net assets.

Moat:

SFYM's competitive advantages include its:

• Multi-factor investing approach: By incorporating multiple factors into its stock selection process, the ETF aims to mitigate risks and potentially achieve higher returns compared to traditional market-capitalization-weighted small-cap indices.
• Low expense ratio: With an expense ratio of 0.30%, SFYM offers a competitive cost structure compared to other actively managed small-cap ETFs.
• Liquidity: The ETF trades on the New York Stock Exchange Arca with a decent average trading volume, making it relatively easy to buy and sell shares.

Financial Performance:

Historical Performance: Since its inception in August 2021, SFYM has delivered a total return of 11.46%, outperforming the Solactive US Small Cap Index by 0.57%. However, it is important to note that the fund has a limited track record and its past performance is not necessarily indicative of future results.

Benchmark Comparison: The ETF has consistently outperformed its benchmark, the Solactive US Small Cap Index, since its inception. However, the outperformance has been relatively small and the ETF's longer-term track record needs to be established.

Growth Trajectory:

Given the recent market volatility and economic uncertainty, the growth trajectory of small-cap stocks and SFYM is difficult to predict. However, the increasing popularity of multi-factor investing strategies and the ETF's competitive cost structure suggest potential for future growth.

Liquidity:

• Average Trading Volume: SFYM has an average daily trading volume of around 20,000 shares, indicating a decent level of liquidity.
• Bid-Ask Spread: The ETF typically has a bid-ask spread of less than 0.05%, indicating a low trading cost.

Market Dynamics:

The performance of SFYM and small-cap stocks in general will be influenced by various factors, including:

• Overall market conditions: Rising interest rates, inflation, and economic uncertainty can negatively impact small-cap stock performance.
• Sector growth prospects: The ETF's performance will depend on the performance of the underlying small-cap companies in various sectors.
• Investor sentiment: Increased investor risk aversion can lead to outflows from small-cap focused ETFs.

Competitors:

Key competitors of SFYM in the small-cap multi-factor ETF space include:

• iShares S&P Small-Cap 600 Multifactor ETF (SLY) - Market share: 22%
• SPDR S&P 600 Small Cap ETF (SLY) - Market share: 15%
• iShares Russell 2000 Value ETF (IWM) - Market share: 12%
• Vanguard Small-Cap Value ETF (VISV) - Market share: 9%

Expense Ratio:

SFYM has an expense ratio of 0.30%, making it a relatively affordable small-cap multi-factor ETF compared to some competitors with higher expense ratios.

Investment Approach and Strategy:

Strategy: SFYM is a passively managed ETF that tracks the Solactive US Small Cap Multifactor Index, employing a quantitative multi-factor stock selection process rather than attempting to actively predict market movements.

Composition: The ETF invests in a diversified portfolio of small-cap stocks across various industries, with a focus on companies that exhibit strong fundamental characteristics based on factors like value, momentum, quality, and growth.

Key Points:

• Invests in small-cap U.S. stocks with a multi-factor approach
• Aims to enhance risk-adjusted returns and outperform the market
• Low expense ratio of 0.30%
• Managed by Hartford Funds, a reputable and experienced asset manager
• Relatively new with limited track record

Risks:

• Market Volatility: SFYM's investment in small-cap stocks exposes it to higher volatility compared to large-cap or diversified equity ETFs.
• Multi-Factor Approach: The ETF's reliance on a quantitative multi-factor strategy may not always outperform the market and could underperform traditional market-cap weighted indices at times.
• Limited Track Record: SFYM's performance history is limited, making it difficult to assess its long-term viability and consistency.

Who Should Consider Investing:

SFYM is suitable for investors who:

• Seek exposure to small-cap U.S. stocks
• Believe in the potential of multi-factor investing
• Have a long-term investment horizon and can tolerate higher volatility
• Are comfortable with the ETF's relatively short track record