Top Performing Factor ETFs

October 24, 2018

Factor investing took the ETF world by storm during the last few years. Countless factor—also referred to as “smart-beta”—ETFs were launched, giving investors the chance to outperform the broader stock market.

This year, the enthusiasm for these products has died down a bit, perhaps because they aren’t as new or exciting as they were before. Still, factor ETFs aren’t going away anytime soon; if anything, they’ve made the transition from just a hot trend to a mainstay in many investors’ portfolios.

What Are Factors?

According to MSCI, factors are any stock characteristics “that can be shown to be important … in explaining risk or returns.”

There could be thousands of factors, but most do not outperform the market over the long term. Historically, value and growth were the two factors that investors focused on. More recently, factors like low volatility, momentum and others have shown potential to outperform in certain market environments.

Here we’ll run down the best-performing factor ETFs this year, focusing only on the funds that offer broad exposure to U.S. equities.

Factor Of The Year

A quick glance at our list reveals that growth is the factor of the year. ETFs that target growth stocks—whether it be within large-cap, midcap or small-cap stocks—are all up 10% or more.

 

Top Performing Factor ETFs Of 2018

Ticker Fund YTD Return (%)
PXMG Invesco Russell MidCap Pure Growth ETF 16.08
PXSG  Invesco Russell 2000 Pure Growth ETF 12.02
JSML  Janus Henderson Small Cap Growth Alpha ETF 11.79
JKE  iShares Morningstar Large-Cap Growth ETF 11.32
PXLG  Invesco Russell Top 200 Pure Growth ETF 11.28
NULG  NuShares ESG Large-Cap Growth ETF 11.14
LVUS  Hartford Multifactor Low Volatility U.S. Equity ETF 10.97
OQAL  Oppenheimer Russell 1000 Quality Factor ETF 10.66
FYC  First Trust Small Cap Growth AlphaDEX Fund 10.55
IWY iShares Russell Top 200 Growth ETF 10.52
PWB  Invesco Dynamic Large Cap Growth ETF 10.18
SPMO  Invesco S&P 500 Momentum ETF 10.09
SPYG SPDR Portfolio S&P 500 Growth ETF 9.95
VOOG  Vanguard S&P 500 Growth ETF 9.94
IVW  iShares S&P 500 Growth ETF 9.87

 

 

That includes a trio of ETFs targeting growth stocks within the S&P 500: the SPDR Portfolio S&P 500 ETF (SPYG), the Vanguard S&P 500 Growth ETF (VOOG) and the iShares S&P 500 Growth ETF (IVW).

There are many ways ETFs and their underlying indexes attempt to target a particular factor, which can lead to significantly different returns among various funds targeting the same factor. But these three funds all track the same S&P 500 growth index—which selects growth stocks based on sales growth, earnings growth and momentum—leading to nearly identical performance.

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