[Photo:  by DJ Shin (own work) / Wikimedia Commons]

First JPMorgan Chase, then Goldman Sachs, and now Wells Fargo. They’re all charging into the biggest asset management battleground, exchange-traded funds. If all goes as planned, Wells will launch its first ETF within 3 to 6 months. But first, the bank must beef up its quant credentials.

The bank is considering a type of ETF that’s hugely popular among the math whizzes who now dominate passive investing. It’s a souped-up version of smart beta known as multifactor, which stuffs 2 or more investment themes into a single security – e.g., value and momentum. Proponents say they’re a way of replicating active managers without their emotions or fees.

 “We believe it’s a good time to take a look at things like low volatility, investing factor-based ETFs that are not so dependent on market-weighted stocks,” said Kirk Hartman, global CIO of Wells Fargo Asset Mgmt. “Multifactors, to me, that’s the key to success.”

Wells Fargo fired its first shots in the robots’ direction 2 months ago when it bought L.A.-based quant shop Analytic Investors, which gave the bank an array of both passive and active multifactor offerings and is now converting those mutual funds into smart beta ETFs. So far, Wells Fargo has launched one factor mutual fund with the help of Analytic. It’s a low-volatility strategy similar to those that dominated the smart beta landscape earlier this year before suffering a deluge of outflows. Since its inception at the end of October, about $26 million has flowed to the product.

Wells Fargo wants to bring a new concept to ETFs: factor risk parity. In its usual conception, risk parity is a strategy for partitioning a portfolio’s asset classes according to the size of their price swings. In a typical hedge fund portfolio, for instance, stocks would have a smaller chunk, bonds a bigger one, to balance their impact.

The bank has some catching up to do. It’s one of the last big fund providers to add a quant arm to its investing force. Goldman Sachs Asset Management, for example, established its quantitative investment strategies team in 1989, getting leg up when it came to products with quant tilts. Wells Fargo will also be up against fund titans like BlackRock and Invesco, which have already amassed billions of dollars in assets by selling their clients on smart-beta.