The Case for Multifactor Funds
Investors are likely best served by not putting all their factor bets in one basket.
The case for multifactor funds is essentially the case for diversification, which Nobel Prize winning economist Harry Markowitz has described as the only “free lunch” in investing. Investors shouldn’t put all their “eggs” in one factor. But just because the argument for factor diversification is simple doesn’t mean that selecting and sticking with a multifactor strategy is easy. In fact, in light of the proliferation of multifactor funds, choosing from the now-expansive menu is becoming more difficult by the day.
Multifactor Funds Are Multiplying
The number of multifactor funds has mushroomed. As of May 31, 2018, there were 300 U.S.-domiciled index mutual funds and exchange-traded funds that were assigned the multifactor strategic-beta attribute in Morningstar’s database.  A total of 199 of those 300 were launched in the preceding five years. Assets in these funds have grown commensurately. As of the end of May 2018, their collective assets under management stood at $63.9 billion. Ten years ago, this collection of funds collectively held just $2.2 billion of investors’ money. Much of this growth has been organic. Over the decade through May 2018, these funds amassed an estimated $49.3 billion in net new flows.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.