The comprehensive factor exposure has also outperformed benchmark indices as well, with an improved risk-adjusted return.
“Over the past 15 years, adding comprehensive factor index exposure to a traditional 60/40 portfolio significantly increased returns without adding risk,” Noack said.
In the survey of advisors, the majority of respondents indicated that they will likely implement multi-factor investments as either core or satellite holdings, depending on the strategies. Additionally, advisors will make investment decisions based on a combination of historical performance of the strategy, alongside the clarity in the underlying investment process.
Given the current environment, DEUS’s underlying Russell 1000 Comprehensive Factor Index is currently overweight financials, industrials, consumer services, consumer goods, utilities and basic materials, compared to the benchmark Russell 1000 Index.
DEEF’s underlying FTSE Developed ex US Comprehensive Factor Index is overweight industrials, consumer services and utilities, compared to its benchmark FTSE Developed ex US Index.
DESC’s underlying Russell 2000 Comprehensive Factor Index is overweight financials, industrials, consumer services, consumer goods and telecom, compared to its benchmark Russell 2000 Index.
Lastly, DEMG’s FTSE Emerging Comprehensive Factor Index is overweight industrials, consumer services, consumer goods, utilities and basic materials, compared to its benchmark FTSE Emerging Index.
The financial sector is a big theme across the various factor ETFs, which is unsurprising as the area has historically maintained lower quality scores, according to Noack. However, toward the end of the financial crisis, momentum scores in the financial sector began to pick up and measures taken during the crisis helped increase the quality score of the sector, which have lead to slightly larger allocations toward this area of the market.
Financial advisors who are interested in learning more about factor-based investments can watch the webcast here on demand.