Morningstar: Extensively diversified multifactor ETFs more likely to outperform

Focus on key performance drivers

Valeria Martinez
clock • 2 min read

Investors should examine the key drivers of the performance patterns of multifactor ETFs to determine which funds will outperform in the long-term, analysis by Morningstar shows.

Multifactor funds, which control more than $250bn of investor money, have enjoyed a renaissance in their performance over the past two years, while others have continued to struggle.  These strategies include a wide range of strategic-beta funds that provide exposure to two or more risk factors or stock characteristics that have been associated with outperforming the market. There are five factors: quality, momentum, value, low volatility and small size. When one factor underperforms, multifactor funds' diversified nature should reduce the impact and safeguard a portfolio without sacr...

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