Multifactor Funds: An Early (Bearish) Assessment

19 Pages Posted: 29 Jun 2022

Date Written: June 23, 2022

Abstract

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

Estrada, Javier, Multifactor Funds: An Early (Bearish) Assessment (June 23, 2022). Available at SSRN: https://ssrn.com/abstract=4144854 or http://dx.doi.org/10.2139/ssrn.4144854

Javier Estrada (Contact Author)

IESE Business School ( email )

IESE Business School
Av. Pearson 21
Barcelona, 08034
Spain
+34 93 253 4200 (Phone)
+34 93 253 4343 (Fax)

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