Value is a composite measure of cash-flow yield, earnings yield and sales-to-price. Quality is a measure of a company’s profitability, efficiency, earnings quality and leverage. Momentum shows the 11-month total return, lagged 1 month. Volatility represents the standard deviation of five years of weekly total returns of each company stock. Lastly, size encompasses each company’s full market-capitalization in U.S. dollars.
“Fund companies say that blending factors leads to diversification and shields investors when single factors, such as growth or value, fall out of favor. Transparent and rules-based multifactor ETFs are intended as core portfolio holdings that complement market-cap-weighted index funds,” according to Barron’s.
Some multi-factor ETFs are finding rapid success, including the Goldman Sachs lineup of Active Beta ETFs, such as the Goldman Sachs ActiveBeta International Equity ETF (NYSEarca: GSIE), Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (NYSEarca: GSLC) and Goldman Sachs ActiveBeta Emerging Markets Equity ETF (NYSEarca: GEM).
Those ETFs are among the most successful to come to market over the past year.