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Are factor ETFs fit for purpose?

As you try to navigate the market shift consider whether factor funds are serving their purpose
Are factor ETFs fit for purpose?
  • Investment styles have been increasingly important in recent years but targeting them via funds can be complicated
  • Momentum funds have done well in recent years but some have lagged in the recent rally
  • Sector funds may be a better way to play a value upswing than value funds

The cyclical rally of the past half year may have reignited the debate about value stocks, but it has also had a knock-on effect on other investment styles. Having already fed into associate editor Algy Hall’s blue-chip momentum stock screen, a value tilt in momentum strategies has now become evident among funds such as iShares Edge MSCI USA Momentum Factor UCITS ETF (IUMF).

This exchange traded fund’s (ETF) recent half-yearly rebalancing has seen it tilt heavily away from growth stalwarts towards cyclical names. Microsoft (US:MSFT), Amazon (US:AMZN) and Apple (US:AAPL) have all exited the fund, having been among its top 10 holdings before the rebalance. The fund’s allocation to financials, meanwhile, has jumped from just 1.5 per cent of its assets before the rebalancing to 32.5 per cent. And its allocation to information technology stocks has fallen from 41.1 per cent to 17.7 per cent.

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