Top Performing Multifactor ETFs

February 08, 2017

Multifactor ETFs are growing in popularity with ETF users who look to these strategies for factor diversification and outperformance relative to the broad market. Combing through these strategies, however, is no small task.

Multifactor ETFs come in all shapes and sizes, and today, there are some 228 multifactor ETFs in the market.

Perhaps the biggest challenge could be one of definition. To many, a multifactor ETF is one that combines various risk factors known to deliver premiums over time—think mixing value, size, momentum, low volatility, high yield and quality in one portfolio.

Single Factor With Multifactor Methodology

But multifactor ETFs can also be funds that look like single-factor ETFs—such as the Vanguard Russell 2000 Value Index Fund (VTWV)—but employ a multifactor methodology to stock selection and/or weighting. Under that broader definition, VTWV is a multifactor ETF and one of the best performing in the past year, with some 45% in total returns.

Using the broadest-possible brush to find the best-performing multifactor ETFs—including those that mix risk factors as well as those single-factor funds that employ multifactor methodologies, we have found that the best-performing multifactor ETFs in the past year have come from one of two providers: PowerShares and First Trust.

PowerShares, with 129 ETFs in the market with combined assets nearing $110 billion, is well-known for its smart-beta strategies. So is First Trust, with 114 ETFs in the market and nearly $45 billion in assets.

Here’s a quick look at the top-performing multifactor funds in the past 12 months:

PowerShares Dynamic Semiconductors Portfolio (PSI) – up 72%

PSI is a U.S. equity fund that uses a quantitative model to select and weight semiconductor companies. Securities are picked through a multifactor methodology that looks at price momentum, earnings momentum, quality, management action and value, according to the company. The index-based strategy is a smart-beta approach to the semiconductor space.

In the past 12 months, PSI has led multifactor ETFs, delivering more than 72% in total returns—and outpacing the S&P 500 by some 50 percentage points, as the chart below shows.

PSI has only $156 million in assets despite its being on the market for roughly 12 years. From a cost perspective, this ETF has an expense ratio of 0.63%, which isn’t all that unusual in the smart-beta space. Still, PSI trades with an average spread of 0.30%, according to our data, putting the overall cost to own and trade this fund around 0.93%, or $93 per $10,000 invested.


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