Multi-factor funds: A profitable strategy?

“In the past year, investment firms have been witnessing a steady decline in investment capital and investors’ passion earmarked for smart-beta ETFs that focus on a specific factor, such as volatility, liquidity, size, or momentum.

While these funds remain a popular investment vehicle for many, year-on-year asset growth has dipped below the five-year average.

Single-factor funds are packaged as differentiated products. To this point, they have been a way to balance losses because they allow firms to charge higher fees. But the slowdown in asset growth is affecting the bottom line.

This decline in popularity has led firms to get creative with another differentiated class of smart-beta products: multi-factor funds. By pushing multi-factor investing — funds that group many factors in an investment vehicle — firms can realize the higher fees they’ve grown fond of through traditional factor investing.

If firms can find a way to make multi-factor strategies easier to develop, they have an opportunity to improve profitability exponentially.”

Read the full article at Refinitiv.

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