DYNF - BRNY: An Expensive But Sensible U.S. Factor Rotation ETF

2024-07-15 23:48:34 ET

Summary

• BRNY is an actively managed ETF following a factor rotation strategy that emphasizes the size (large vs. small) and style (growth vs. value) factors. Its expense ratio is 0.79%.
• The Sub-Adviser has observed that cyclical patterns of market phases occur can be predicted using 36-month rolling periods for size and 12-month rolling periods for style.
• However, BRNY differs from competitors like OMFL because it does not go all-in on any particular investment regime. Instead, it assigns confidence-based target weights for each factor.
• Currently, BRNY favors large-caps over small-caps and growth stocks over value stocks by a factor of 2:1. Its underlying selections are also excellent from a growth, value, and momentum perspective.
• While its 0.79% expense ratio is excessive and likely will limit BRNY's AUM growth, I like the strategy and its composition, so I have assigned it a "buy" rating.

Investment Thesis

This article initiates my coverage of the Burney U.S. Factor Rotation ETF ( BRNY ), an actively managed fund following a proprietary strategy that selects stocks based on size (large-cap, small-cap) and style (growth, value) cycles. Before comparisons are made with the Invesco Russell 1000 Dynamic Multifactor ETF ( OMFL ), I can assure you that BRNY is different and, in my opinion, superior. It's still early, but my understanding of the fund's investment strategy means it will offer much more consistent returns than OMFL, and I look forward to explaining why this factor rotation ETF deserves a "buy" rating. I hope you enjoy the read.

BRNY Overview

BRNY is driven by a proprietary model that predicts which size segment (large or small) and style (growth or value) the market will favor next. Historically, the Burney Company has observed that small-cap value has outperformed large-cap growth but acknowledges periods when the opposite has occurred and claims the cycles are reasonably predictable. As noted in the prospectus , "the cyclical pattern of these market phases can be seen over a 36-month rolling period with regard to market cap size and a 12-month rolling period with regards to style." ...

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