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Are Exchange-Traded Funds Harvesting Factor Premiums?

19 Pages Posted: 7 Feb 2017 Last revised: 20 Sep 2017

David Blitz

Robeco Asset Management - Quantitative Strategies

Date Written: February 6, 2017

Abstract

Some exchange-traded funds (ETFs) are specifically designed for harvesting factor premiums, such as the size, value, momentum and low-volatility effects. Other ETFs, however, may implicitly go against these factors. This paper analyzes the factor exposures of US equity ETFs and finds that, indeed, for each factor there are not only funds which offer a large positive exposure, but also funds which offer a large negative exposure toward that factor. On aggregate, all factor exposures turn out to be close to zero, and plain market exposure is all that remains. This finding argues against the concern that factor premiums are rapidly being arbitraged away by investors in ETFs.

Keywords: factor investing, factor premiums, smart beta, exchange-traded funds, ETFs, value, momentum, low-volatility, overcrowding, factor crowding

JEL Classification: G11, G12, G14

Suggested Citation

Blitz, David, Are Exchange-Traded Funds Harvesting Factor Premiums? (February 6, 2017). Available at SSRN: https://ssrn.com/abstract=2912287

David Blitz (Contact Author)

Robeco Asset Management - Quantitative Strategies ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

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