Multifactor Funds: An Early (Bearish) Assessment
19 Pages Posted: 29 Jun 2022
Date Written: June 23, 2022
Multifactor funds, which offer risk factor diversification, have several appealing characteristics. They enable investing in factors, which has become a typical way to enhance a portfolio’s long-term risk-adjusted return; they provide exposure to more than one factor, which enables diversification; and they offer these benefits neatly packaged in one product. What’s not to like? Their performance. Although their track record is limited, the current evidence on multifactor funds targeting the U.S., global, international, and emerging markets shows that these products have largely failed to outperform market-wide, cap-weighted indexes, or low-cost ETFs that track them, in terms of return, risk-adjusted return, and downside protection.
Keywords: Factor investing, multifactor funds, value, size, quality, momentum, low vol
JEL Classification: G11
Suggested Citation: Suggested Citation