Are You Trying to Time Your Factor ETFs?
The ability to time or rotate between a set of investment strategies can help investment managers add value for clients seeking actively managed solutions. Traditionally, many investors have accomplished this through an investment process focused on rotating between sectors, countries, and broad investment styles.
Today, as more and more investors have continued to adopt smart beta ETFs that emphasize a given set of equity risk factors, the number of investors claiming to have the magic formula to rotate effectively between these strategies has increased. Many view valuations as the foundation of what investors should consider when determining which factor ETFs to invest in. They are important, but for most investors, valuations are just one piece of a bigger puzzle to factor investing.
Factor ETFs Have a Wide Range of Cycle Lengths
Factors move in and out of favor just like any investment strategy over the course of a full market cycle. The past few years have shown that quality, momentum, and minimum volatility have all provided some opportunity to outperform a representative equity benchmark, while value and size have both lagged.