Deeper Dive On Equity Factors

We've talked several times about the challenges of using multi-factor funds, most recently here. I believe factors can be effectively blended together but it probably makes more sense to do it yourself than buy a multi-factor fund. One point I didn't emphasize in the most recent post but have talked about before is that blending factors together in one fund can result in all the moving parts diluting the multi factor effect such that you end up closer to market cap weighting than what you originally intended. 

QVML which targets quality, value and momentum is 39% tech and 11% communications compared with 37% and 10% respectively for iShares S&P 500 (IVV). Other than iShares MSCI USA Value (VLUE) which is 38% tech (due to the huge run up in Micron), there aren't too many value index funds that heavy in tech yet somehow, QVML is supposed to give access to value? 

Finominal did some research on different ways to access multi-factor strategies. 

Combination models blend together stocks from each factor so if you built a multi factor strategy with two or three funds you'd be building a combination model. Intersectional means picking stocks that score well on all of the factors that a fund is trying to access. 

Copilot says QVML is a combination fund and that Goldman Sachs Active Beta (GSLC) which adds low volatility to quality, value and momentum, is intersectional. 

Um,

And the results are similar to each other and the S&P 500.

Yes, GSLC lagged behind the other two but that chart doesn't recreate the result that Finominal got. The SPMO/SPHQ/SCHD combo we've played around with here and that I've used in place of domestic market cap weighting in client accounts, has differentiated a little better than the above with almost 150 basis points of improved CAGR and noticeably lower volatility but not dramatically lower. 

Kind of related, ETF IQ reported that ETRACS is closing two ETNs that seem interesting. They have no assets to speak of but still interesting. MTUL is 2x momentum and USML is 2x low volatility. I tried to find a 2x low volatility fund for a blog post but USML didn't pop up. I think it was Cliff Asness that talked about leveraging up low volatility equities. 

SSO which is 2x SPY has tended to track double the reference index over longer periods (it's not infallible) so it is interesting to see MTUL and USML not do that very well except for the volatility on MTUL versus MTUM.

Going year by year there were a couple of instance where they did get very close to the 2x the result.

The idea is interesting but the result this way a little less so.

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