We have seen that factor-based investing has become quite popular with buyers of ETFs. But is this excitement justified? In other words, do factors really outperform?
A look at the numbers would indicate they do.
We tracked the performance of several factors covering Eurozone equities for the period January 2000 to June 2016, and the results were eye opening. All of the factors - which included quality, low volatility, total shareholder yield and prime value - outperformed the broader market over the period.
Some, like quality - which outperformed by 6% - did particularly well. But even the “least best” outperformer, low volatility at 3%, represented a significant improvement over the benchmark. Interestingly, these factors also did well during the current period of low interest rates. Between January 2009 and June 2016 both quality and low volatility outperformed by 2%.
This is just a snapshot, of course. But research has long supported the contention that, done smartly, smart beta can add performance.
That makes it a smart move.