Factor investing targets specific characteristics — value, growth, quality, momentum, low volatility — that have historically generated excess returns. Smart Beta ETFs systematically capture these factors.
Answer: A characteristic that explains excess returns vs. the market. Factors are measurable stock characteristics — value, momentum, quality — linked to higher risk-adjusted returns.
Answer: Stocks trading cheaply relative to fundamentals. Value stocks are cheap on metrics like P/E or P/B — historically they outperform over long periods.
Answer: Stocks that have recently outperformed. Momentum captures the tendency for recent winners to keep winning (and losers to keep losing) over months.
Answer: Rule-based ETFs targeting specific factors. Smart Beta uses transparent, rules-based methods to capture factors like value or quality at low cost.
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