Moreover, the multi-factor strategies are still relatively new, with most of these ETFs only coming to market within the past three years, so their track recross are thin. Consequently, potential investors should take the time and perform their due diligence before investing in the products.
“A lot of this is so new, but if we waited until all indexes had a live track-record of seven years, product development would stop,” Rob Nestor, head of iShares U.S. smart beta at BlackRock, told Bloomberg. “So investors should be discerning when they’re looking at backtests and should examine closely the methodology and make sure the factors are captured and backed by empirical evidence. We welcome the examination of that.”
The multi-factor ETF space has been gaining traction among both retail and institutional investors, According to a January survey by Greenwich Associates, 57% of institutional investors utilize multi-factor ETFs, with Goldman Sachs Asset Management offerings among the most popular. Additionally, about 48% said they could increase holdings in the near future.
For more information on multi-factor strategies, visit our smart beta category.