Morningstar: Extensively diversified multifactor ETFs more likely to outperform

Focus on key performance drivers

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...