Multi-Factor Strategies Still Matter | ETF Trends

Individual investment factors behave in cyclical fashion and pinpointing when a particular factor will be in style and when it will lag is a difficult task. Avoiding that task is one advantage of multi-factor exchange traded funds, such as the SPDR MSCI Quality Mix USA ETF (NYSEArca: QUS), an exchange traded fund with exposure to the low volatility, quality and value investment factors.

QUS tracks the equally-weighted MSCI USA Quality Mix A-Series Index, which is a combination of the MSCI USA Value Weighted, MSCI USA Minimum Volatility and MSCI USA Quality Indexes.

“According to the 2018 Smart Beta Survey by FTSE Russell, multifactor smart beta strategies accounted for the largest number of new adoptions among asset owners,” said State Street in a recent note. “They’ve also seen the greatest number of new fund launches and the second-highest asset growth rate among smart beta funds over the last four years.”

QUS is just over four years old and has almost $300 million in assets under management.


The quality factor is a point of emphasis for a growing number of strategic beta exchange traded funds. Though there has been debate surrounding defining quality as it pertains to factor-based investing, quality companies and dividend-paying stocks often go hand-in-hand because those dividends are seen as signs of stable earnings and thoughtful management.

For its part, QUS holds 621 stocks and “blends low volatility, quality and value exposures together in a single strategy,” according to the issuer.

QUS can help investors avoid some of the cyclical nature of single-factor strategies.

“But while these factors have demonstrated outperformance over the long term, over the short term, the performance of single factors can be cyclical,” according to State Street. “Individual factors can experience periods of underperformance relative to market cap-weighted indices, demonstrating that different market environments can have varying impacts on factor performance.”

Bolstering the case for QUS is data confirming factors are usually loosely correlated with each other.

“A closer look at correlations between single factors further highlights the diversification benefits that can come with a multifactor approach,” said State Street. “Most factor pairings exhibit low correlations with each other, indicating that combining them into one multifactor strategy could enhance diversification and improve risk-adjusted performance over time.”

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