On the Anomaly Tilts of Factor Funds

76 Pages Posted: 16 Feb 2023 Last revised: 9 Jan 2024

See all articles by Markus S. Broman

Markus S. Broman

Ohio University

Fabio Moneta

Telfer School of Management, University of Ottawa

Date Written: January 4, 2024

Abstract

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 are important for amplifying their factor tilts. Moreover, HMFs with large factor tilts outperform corresponding ETFs, or HMFs with contrary tilts, both before and after accounting for implementation costs and fees. We link this outperformance to the use of short positions and higher factor-related returns. Finally, we show that only HMFs achieve similar performance (net of costs) as the academic factors.

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

JEL Classification: G10, G11, G14, G23

Suggested Citation

Broman, Markus S. and Moneta, Fabio, On the Anomaly Tilts of Factor Funds (January 4, 2024). 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
Canada

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