7 Questions to Ask Before Buying Any Multifactor Fund
A closer look at the growing menu of multifactor strategies and a tool kit to sort through it.
The menu of multifactor funds has expanded considerably over the past decade. As the options have grown, so has investors' research burden. These funds are diverse and often among the most-complex index strategies on the market. While many of these strategies may sound similar, there are important differences in their approaches to portfolio construction, which often yield very different portfolios and performance. Most of these funds have disappointed in recent years, illustrating that diversification across factors with strong theoretical support isn't sufficient to guarantee strong performance. Morningstar’s passive strategies research team recently published a paper which provides a closer look at the growing landscape and outlines a framework to evaluate these funds' investment processes. Click here to view the full paper.