browser Warning Icon You are using an older version of Internet Explorer. You are viewing this site with limited functionalities.
The Merits and Methods of Multi-Factor Investing Are multiple factors better than one?

With a wealth of smart beta indices to choose from, market participants may find it difficult to decide when each factor-based strategy is best suited to deliver returns. Is it wise to rely solely on the performance of one factor? If not, what multi-factor approaches could be considered and how effective are they?

• Single-factor equity strategies (namely quality, value, momentum, and low volatility) may have rewarded market participants with active returns over the long term, but each is susceptible to unique, cyclical drawdowns.

• Choosing and timing exposures to single factors requires considerable foresight (or luck) to navigate optimally between them.

• The low correlations between the active returns of each factor generate a diversification benefit in a multi-factor portfolio, which can result in more stable excess returns.

• Adopting a bottom-up, "stock-level," multi-factor selection process may increase overall exposures to the desired factors when compared with allocating to multiple single-factor portfolios (a top-down "index of indices" approach).

• The historical risk/return characteristics of the S&P 500® Quality, Value & Momentum Multi-Factor Index compare favorably to the best-performing single factors over varying time horizons.

• For market participants wishing to avoid the risk in choosing between single-factor strategies, multi-factor indices may offer a viable alternative without compromising on performance.


Sign up for email updates

Get our latest insight on the markets.

Thank you for subscribing!