On the Anomaly Tilts of Factor Funds

79 Pages Posted: 16 Feb 2023

See all articles by Markus S. Broman

Markus S. Broman

Ohio University

Fabio Moneta

Telfer School of Management, University of Ottawa

Date Written: February 14, 2023


By analyzing portfolio holdings, we find that a significant subset of Hedged Mutual Funds (HMFs) and smart-beta Exchange-Traded Funds (ETFs) tilt their portfolios towards well-known anomaly characteristics and that such tilts are highly persistent. Short positions of HMFs amplify their factor tilts. Most single-factor ETFs target multiple factors, while many also exhibit offsetting tilts to other factors. HMFs with large factor tilts outperform corresponding ETFs, which is driven by short positions and higher factor-related returns. Overall, we show the superior factor replication ability of HMFs over ETFs, and that HMFs achieve similar (or better) performance as the academic factors.

Keywords: Hedged Mutual Funds, Exchange-Traded Funds, Factor Tilts, Anomalies, Performance

JEL Classification: G10, G11, G14, G23

Suggested Citation

Broman, Markus S. and Moneta, Fabio, On the Anomaly Tilts of Factor Funds (February 14, 2023). Available at SSRN: https://ssrn.com/abstract=4358597 or http://dx.doi.org/10.2139/ssrn.4358597

Markus S. Broman (Contact Author)

Ohio University ( email )

College of Business, Finance Department
Copeland Business Annex 207
Athens, OH 45701-2979
United States

HOME PAGE: http://www.markusbroman.com

Fabio Moneta

Telfer School of Management, University of Ottawa ( email )

136 Jean-Jacques Lussier Street
Ottawa, Ontario K1N 6N5

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