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ETF Specialist

Don't Try to Time Factor Strategies

It may be tempting to time factor strategies, but sticking with a fixed plan is probably a better course of action.

This article was published in the October issue of Morningstar ETFInvestor. Download a complimentary copy of ETFInvestor by visiting the website.

Investors love to chase performance. But as Morningstar and others have documented, a strong long-term record alone is not predictive of future performance. Many investors have discovered this the hard way, which has helped fuel the growing adoption of index strategies, including strategic-beta funds. These attempt to provide lower-cost, more transparent, and more-consistent exposure to securities with characteristics that have historically been associated with superior performance. But what if the apparent performance edge is not sustainable and investors are just relapsing into counterproductive performance-chasing? These are the provocative questions Rob Arnott and his Research Affiliates colleagues pose in a pair of recent articles, “How Can ‘Smart Beta’ Go Horribly Wrong?” (1) and “To Win with ‘Smart Beta’ Ask if the Price is Right.” (2)