Blending several equity factors into one fund can be difficult to pull off in terms of capturing the intended effect. A good example/microcosm from Friday with the Invesco S&P 500 Multi-Factor ETF (QVML). The ticker symbol tells you the factors; quality, value and momentum for large cap stocks.
The first three fund target quality, value and momentum respectively. I did a quick review of QVML in March. The combo of quality, value and momentum is intriguing and has had the tendency to outperform market cap weighting but when I wrote about the fund in March I noted that it's huge weighting to tech wouldn't allow it to differentiate a whole lot.
The above chart is very short of course, below is 2022.
For 2022, using three separate funds worked much better than QVML.
For the longer period, the three individual funds blended together lagged SPY and QVML because it owns less tech than SPY and QVML. Is any of this worth it? That's up to the individual of course but for anyone trying to diversify at the factor level, a multi-factor fund might not be the answer.
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3 comments:
Does the use of some metrics (quality, value, momentum) win? Is it better than stock-picking due to more diversity? As for stock-picking, see this:
https://www.wsj.com/finance/investing/stock-picking-funds-are-performing-as-poorly-as-ever-fee28e30?mod=hp_lead_pos1
Great comment, will reply later as ter today or tomorrow.
There is a paper from Research Affiliates that goes into detail about blending those three factors that I linked to in the March post that I referenced in this post. Those three outperformed slightly over the longer term and year by year outperformed 9 out of 16 full and partial years. They outperformed though with consistently less volatility and smaller drawdowns. Worth it is up to the end user but I believe so.
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