Are Exchange-Traded Funds Harvesting Factor Premiums?

9 Pages Posted: 2 Feb 2018

See all articles by David Blitz

David Blitz

Robeco Quantitative Investments

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Date Written: August 9, 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 U.S. equity ETFs and finds that, indeed, for each factor there are funds that offer a large positive exposure and also funds that 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 being arbitraged away rapidly 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? (August 9, 2017). Journal of Investment Consulting, Vol. 18, no. 1, 2017. Available at SSRN: https://ssrn.com/abstract=3024968

David Blitz (Contact Author)

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

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