Anyone can target a myriad of specific asset categories and sub-classes, but among smart beta exchange traded fund offerings, investors may be exposed to various factors as factors are not mutually exclusive.
“In the factor world, a stock can exhibit both value and momentum; or it can exhibit quality and low volatility and size. Just because it has one characteristic doesn’t necessarily preclude it from having another,” Rob Bush, ETF Strategist at Deutsche Asset Management, said in a note.
With the various factors out there, which can define equities across across various parameters, individual stocks can exhibit multiple features. Consequently, investors may have the best of both worlds, gaining exposure to two factors for the price of one investment.
“Investors can, if they so desire, both have their cake and eat it too (i.e. both have their value and their momentum – eating them is inadvisable),” Bush quipped.
Consequently, Bush advised investors to take a three-step framework when determining the “right” number of factors to consider as the right amount is ultimately a subjective decision from investor to investor.