Additionally, he said, advisors and their clients need to view factors as long-term themes. “You need to have a commitment of 10 to 15 years, which is a long-term commitment. If you believe in value, you have stay the course, even though large-cap growth has outperformed small-cap value lately,” he said.
The concern may be that factor ETFs are a fad or represent data-mining, but Dahya said consider the two issues. If there’s a concern about data mining, look at the manager of the ETF and his or her experience. Ask about how they think about the model’s robustness.
She doesn’t think factor investing is a fad or drawing in new money. Factor investing been around a long time, she said, noting that hedge funds used factor investing for years. Now more liquid products like ETFs are using these strategies. Because of that, she said, it’s not that new money is being added, bu that it’s being rotated to ETFs.
“What’s hidden is that this is not net new money, but it’s just where it’s being shifted,” she said.