Smart-Beta, Multi-Factor ETFs for a Diversified Investment Approach | Page 2 of 2 | ETF Trends

However, by combing through a number of factors in weighting a stock component, these ETFs try to provide a more diversified investment approach.

For instance, the quality metric may define stocks based on consistency in earnings and balance sheet strength. Historically, high-quality stocks have outperformed lower-quality names since speculators may engage in lottery-like behavior.

The momentum theme helps investors target stocks with higher relative performance that may continue to maintain its strong performance over the near-term.

The value strategy has been a long-standing investment theme, favoring stocks that are relatively cheap to fundamentals. Value stocks have also historically outperformed growth stocks over the long-term.

Additionally, due to their factor tilts, many of these smart-beta ETFs may lean toward smaller companies, which carry high growth potential and have historically outperformed large-cap stocks.

For more information on smart beta ETFs, visit our smart beta category.

Max Chen contributed to this article.